Episode 257 | Mistakes Founders Make in Getting Traction

Show Notes

In this episode of Startups For The Rest Of Us, Mike interviews Gabriel Weinberg, founder of DuckDuckGo, about the mistakes founders make in getting traction. They also discuss Gabriel’s new book “Traction: How Any Startup Can Achieve Exposlive Customer Growth”.

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Transcript

Mike [00:00]: In this episode of Startups For the Rest of Us, I’m going to be talking with Gabriel Weinberg about the mistakes founders make in getting traction. This is Starups For the Rest of Us, Episode 257.

Mike [00:17]: Welcome to Startups For the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at launching software products. Whether you built your first product or you’re just thinking about it. I’m Mike.

Gabriel [00:25]: Hey, I’m Gabriel.

Mike [00:26]: And we’re here to share our experiences to help you avoid the same mistakes we’ve made. How you doing this week, Gabriel?

Gabriel [00:30]: Great. Thank you for having me come back.

Mike [00:33]: Yeah, no problem. So to give the audience a little bit of preview here, we’re going to be talking to Gabriel Weinberg about the mistakes that founders make in getting traction. We talked to Gabriel back in Episode 199 about a year ago, and for those of you who don’t remember or didn’t listen to that episode, Gabriel was the co-founder and CEO of Opobox which sold for ten million dollars back in 2006. In 2008, he started DuckDuckGo which is an internet search engine that emphasizes protecting searchers’ privacy and avoiding the filter bubble that is offered by personalized search that you would be most familiar with from Google. So you’ve co-wrote the book ‘Traction’ with Justin Mares and people can find that at either tractionbook.com or Amazon or Barnes and Noble. The new version comes out today. In that book you talk mostly about the bullseye framework that people can apply to help them get traction. Because the second edition of the book is hitting shelves today, can you give us a little bit of a refresher for those people who didn’t catch that episode about the bullseye framework and what the book itself is about?

Gabriel [01:32]: Yeah, sure. I actually started working on this book a long time ago, back in 2009, when DuckDuckGo was just starting to get traction itself. I was trying to figure out how do I get more traction, which is obviously what almost every business sets out to do once they launch their product. How do I get this thing traction? I found out that there was no great framework for getting traction. There was nothing like a procedure you could do to really think about how to pick the best marketing channel for your business at the time. So I went out just to investigate that myself. Then after interviewing lots and lots of people, really hit upon this framework, and extracted it from their successes and called it the bullseye framework because of all the channels that you can use, and we identify 19 in the book, you’re really trying to hit that bullseye, the right channel for you to grow your startup and meet your traction goal. So once I had the framework, I realized there’s really a need in the market for this book just so that startups can use this. That’s when I got my co-author, Justin Mares, to help really flesh out the book. From then, I thought I was 70 percent done, but I was really 20 percent done and I had to really write the book, edit it, and put it out last year. People started using it right off the get go and it starting working really well for people. We sold 35,000 copies, sold out our three printings. Then I started talking to people, doing events, and all sorts of things and really understood where people were getting it wrong and where people were getting it right. From that, I wanted to do a re-write that more crisply helped people get traction and that is what this second edition is. In that context, the bullseye framework in the first edition was a five step process and we simplified it in the second to a three step process. That three step process is simpler and it is the following: the first step is to go through all the 19 channels, these are all the different ways you can get traction, SEO, search engine marketing, trade shows, etc., there’s 19 of them, and really brainstorm a test in each channel where you could possibly get traction from that channel. Then the second step, and we’re talking about this, but the visualization of this framework is a bullseye, like a target, with three rings. So that outer ring is these 19 channels. Then the middle ring is you pick three that seem the most promising tests to run then you run those tests. Those tests are meant to be very small, simple tests, take less than a month and $1,000 to figure out how many customers you can really get through that channel, how much it would cost to acquire the customers, and are those the right customers you need right now to achieve your traction goal. So you run those tests in the middle ring. Then hopefully we assume one of those middle tests look really promising. One of those channels seems like it could be the channel to move the needle for your business. Then you go down to the inner ring, the bullseye, and you double down on that channel and focus on it and try to achieve your traction goal through it by running additional sets of tests within the channel to discover the best strategies to do that. So that’s why it’s called the bullseye framework is because you’re trying to hit that bullseye and find that one channel of the 19 that is going to make you hit your traction goal.

Mike [04:49]: When you went about this new edition of the Traction book, what areas were you seeing where people were making mistakes in implementing it? Was it a result of the fact that it was a five step process and it needed to be cut down to the three step process or were they just kind of misinterpreting different things? Is it the difference between optimization or understanding?

Gabriel [05:07]: The three step process really simplified it and people were a little confused by some of the steps that we had cut out. They were things that you needed to do, like ranking the channels and prioritizing them; really we combined into just one step. There was a little confusion around that, but the bigger issue was in each of these now three steps there are ways that people routinely messed them up. We tried to reorganize those parts to really make it clear to not mess it up in those ways. They’re non-intuitive ways and I can go through each of those. Besides, that’s all in the intro, the first five chapters. Then the last 19 chapters are a chapter for each of the channels. For those, we updated them and we really tried to edit down the parts that were kind of too fluffy. We just did better editing. We ended cutting out about 50 pages of the book even though we added two additional sections, a preface which explains kind of my history of getting traction and some of the mistakes I made, and then a testing addendum at the end which is one of the things people really wanted and were messing up of how to do cheap tests in each of the channels. We have a list of all the channels and we give you a way to do cheap tests in each of them.

Mike [06:20]: I think those extra tests are extremely helpful just because it may not necessarily be clear for some people, for example, offline ads or viral marketing and things like that. You kind of have a conceptual idea of what it is, but you don’t necessarily know how to go about doing it because you’ve never done it before or you’ve never considered it before. I think the addition of those things can certainly help a lot of people. What are some of the broad non-intuitive mistakes that you were seeing people make over the last year of talking to people that are pretty common?

Gabriel [06:52]: Right. There’s four of them. Three of them relate to each step in the new process. The first one is over-arching before that and it’s not starting traction early enough. People think that they need to, and we did say this in the book, but you know now it’s says a lot more crisply, people think that you really need to launch a product before you start going to get traction. The reason is the ‘Leaky bucket’ metaphor. We reuse that in the book and try to use that to explain it. The ‘Leaky bucket’ metaphor is when you start your product it has a lot of holes in it, right? It’s essentially a leaky bucket and if you pour customers on the top, and you can think of customers as money because it costs to acquire customers, then that money is leaking out. So the intuitive answer is I should not spend money on traction efforts until my bucket holds water. The problem with that is that what people do instead is they get beta customers and they get these beta panels and they iterate on the product just off these beta customers. Those beta customers, they’re too close to you. Not only do you become friends with them and you kind of know them, but they are not getting first impressions of your product at any time. They are seeing this evolution of the product and they are primed with what they previously know whereas if you have a steady stream of cold customers coming through, through some traction efforts then you’re constantly seeing real market feedback and whether your product is really going to resonate in the market. You want that so you can really figure out where the holes in your bucket are or else what happens is, this is what usually happens, you then launch your product, start to get traction, try to get traction, and realize, “Oh, I thought my bucket wasn’t leaky from my beta customers but it really is still leaky.” So you really want to start that traction effort right away, right at the beginning of product development. We try to argue strongly in the book that you should spend 50 percent of your time on it. Just to make it even more clear of why you should do this is you think that you might be getting a lot of this information from your product development methodology from your beta customers, but what you’re getting in addition to finding the holes is when you’re testing these traction efforts, you don’t have to spend a lot of money on it just to get a few customers coming through cold, you’re figuring out what messaging is best. You’re figuring out what niche to focus on when you launch. So when you do launch you can figure out the right channel to launch with, the messaging, the niche to focus on, and you can really hit the ground running with a real useful product launch.

Mike [09:27]: Yeah, as you were talking, and I’m not sure this is a good analogy to make, but the whole leaky bucket, I think that people have this whole conceptual idea of like all the holes are exactly the same size and I just need to put a patch over each of them, but the reality is that depending on your product those holes can be different sizes. They can be different shapes and the solution to patching each of those holes can be completely different. You need the customers going through that bucket in order to get the information you need to figure out what the patch is for that. So whether it’s a new feature or whether it’s a new marketing message, every single patch is going to be different. You can’t just take a blanket approach of, “Oh, let me create this product and implement all these features because I think that’s what people want.” Those customers coming through and leaking out of the bucket is where you’re going to get the information you need in order to patch those holes. You can’t do it in advance. If you try to, your patch is not probably going to be the right size or shape and you’re going to end up doing too much work or not enough work. In either case you’ve either wasted effort or not done the things that need to be done and you’re still going to be leaking things out the bottom.

Gabriel [10:31]: That’s exactly right. I think the real known intuitive piece is that you have a false sense of security with beta customers. That’s been the product development methodology for a long time and it’s a good one. You should have beta customers, but it’s just not enough.

Mike [10:46]: What are some of the mistakes that people make in terms of the different channels? Because obviously there’s 19 different channels that you can choose from but there’s going to be certain ones that people are much more familiar with. Shouldn’t people be focusing on those?

Gabriel [11:00]: Right. That’s the number one mistake in the first step. When you’re brainstorming all these channels, people navigate towards the ones they’re already familiar with. That’s just availability bias. We saw more and more that people just wanted to ask us and say, “Okay, which of the channels are great for my type of business. Which are good for SaaS businesses, which are good for this offline retail business. That’s the wrong question to ask because you almost want to ask the opposite question. This is the non-intuitive piece of which are the most underutilized channels for my industry or business. Often those are the ones that are greenfield that you can have huge traction opportunities in. Unfortunately, the piece that people mess up is they often ignore these underutilized channels because they’re not familiar with them because they’re from that industry. Say everyone in that industry is using search engine marketing so therefore they need to use search engine marketing. That’s usually a bad idea because that channel is very competitive because all your competitors are using it. If you could find something better to do, even offline, that would be a good choice. A good example of this is WP Engine, the Word Press and hosting company which we profile in the book. They are an online hosting company for word press. A very competitive industry. They ended up going for two very underutilized channels through different parts of their growth. One was offline ads. So they ended up a lot in magazines which no one else was really doing. Then two, they built a side product, a speed tester for word press which we call as a channel engineer and as marketing where you build this other tool that’s completely free on another website that’s complementary to your product. Then everyone started using their speed tester and then they could capture their e-mail and upsell them on the hosting product. If they had just focused on the regular channels, search engine marketing is what people mainly use and SEO, they would have had a much harder time growing.

Mike [12:53]: Now isn’t the risk of doing that also that you are choosing channels that your existing competitors have tried to make work and were unsuccessful doing? That would be my natural inclination. My fear would be, “Oh well, I’m not sure about doing offline ads because there must be a reason that my competitors aren’t doing it.” Is that a fear that people should be concerned about? Is that a real fear or is that more imagined than anything else?

Gabriel [13:19]: I think that’s a fear that people really have. It’s an imagined fear in the sense that almost everyone has the same availability bias and so, quite honestly, no one is really testing these under utilized channels for the most part. But, you make a really good point which is it’s almost the highest leverage tactic you can do. Go talk to other founders, not currently competitors, but failed competitors in your space who are very willing to talk to people usually. They’ll go tell you about all the things they tried and why they failed. It may be the case that they did try something five years ago that didn’t work for x, y, or z reason that may work now or you may discover they tried a bunch of things that for good reason won’t work now. This is kind of the other broad area where people fail in this first step of brainstorming is that they don’t really brainstorm deep enough. You really want to have a good sense of your competitive landscape, whatever you think, marketing channels everyone’s tried, go talk to people of things they haven’t tried, go talk to complementary industries to see what they’re trying. There may be some overlap there. Really spend a lot of time thinking about each channel and how it could be used whereas what mostly happens is people say, “Oh, I don’t know much about that. I guess maybe I could use that for something,” and they give it maybe a minute of thought. The problem with that is that underutilized, overlooked channel may be the one that could just jump you to success.

Mike [14:46]: But I guess how would you know? That kind of comes back to the question of how to test these different things. If you’re looking at a particular channel and you’re not entirely sure how to go about testing that channel, there’s, I think, this bias towards not spending a heck of a lot of money or time doing it because you don’t know what you’re doing. How do you come and get past that? How do you scope the tests that you’re doing such that you’re not wasting time and money, but you’re still doing what would essentially be a definitive test to find out whether or not that channel is going to work for you?

Gabriel [15:18]: Right. That’s exactly why in the second edition we added this testing addendum where we’re giving you suggestions of how to test these channels. In the scope of these tests, you’re trying to answer three things again. You’re trying to answer how many customers could I get through this channel and how scalable it is; how cost effective it is, how much does it cost to acquire customers through the channel; and are these the right type of customers that I want right now because each channel can bring in slightly different demographics and types of customers. You’re measuring those against your traction goal which is also a hard number, which in the beginning is often how much traction do I need to get to profitability or financing. Say I need 1000 customers and I run a test and this channel we only think it’s going to give 100 then that’s probably not going to be a good one to focus on whereas one of these that say, “Oh, it seems like I can get 10,000 if I really blew this out.” That might be a good one to focus on. So what you’re doing in that first step is really identifying tests you can run in each of these channels and then you look at them and you say, “Okay, based on my guesstimates of these tests, I think these three tests are the most promising to run.” Then you literally run them in the second step. The part that people mess up in that second step is trying to optimize too early, premature optimization there, and if Facebook ads are the channel you’re going to test, you run 40 ads. You really shouldn’t be doing that. You should be running four ads and what we say in the book now is don’t run a test longer than a month or more than $1000 except in extenuating circumstances. Then from those tests you can have data to dump to the next step. So to really answer your question is you need a good way to run a cheap test in these channels and if it’s cheap and short then it’s really easy to test these underutilized channels because you have a good sense of what you can do that doesn’t take a lot of time or money to really bear out whether that’s going to work or not.

Mike [17:12]: Now are there any guiding principles around that $1000 versus the month of time? Is that just an arbitrary cap or is that something that is helpful for a founder who is trying to boost up a company and they have much more time than money versus somebody who says, “Hey, I really need to find this out fast, let me just blow $1000 in a week to try to test out say paid advertising or something like that.” Are there guiding principles around striking that balance or is it more just kind of what resources are available to the founder?

Gabriel [17:42]: Well we look at all, we try to come up with good cheap tests for all the channels. We looked at them and we said, “Okay, that cutoff seemed appropriate and it encompassed all these test ideas.” Then where we saw people messing up was they were spending either too much money or too much time on these tests and not cutting them off sooner when they had the information they needed. So, yeah, it is a guiding principle. I think that particularly is guiding for early founders trying to initially find their traction channel. The caveat there is like DuckDuckGo or I Am Now, we’re running tests of much greater magnitude because our traction goal is so much higher and we want to get the error bars down on our estimates so much lower. So we’ll run bigger tests that take longer and take more money. When you’re first starting out or just going into a channel for the first time, I think you should keep it really small, even if you had a lot more money and time. There’s no more reason because you reach diminishing returns very quickly on these tests.

Mike [18:43]: Got it. So the purpose of those principles of $1000 or no more than one month of time are really for newer businesses that are just going into a channel and those limits can fluctuate between the different types of channels that you’re going into. So when you’re targeting blogs, for example, you wouldn’t probably be spending $1000 but it might take you several weeks of back and forth with the relevant blog owners in order to get your product mentioned on their site or to kind of get through their process of doing guest posts versus something like paid advertising where you may very well spend up to $1000 and you can do it within a couple of days, but those bounds are really to encompass all of the different channels that you might try.

Gabriel [19:27]: That’s right. Exactly. A lot of the tests will be free. Some of them you can do very quickly. Yeah, they’re more like guidelines of limits. If you see yourself going over these limits early on, you might be doing something wrong.

Mike [19:39]: Right. That totally makes sense. I just wanted to make sure that we clarified it for the listeners. So are there any other mistakes that people are making when they’re going into specific channels? If you’re testing a specific channel, what sorts of things should you be focused on? Obviously there’s also the potential to focus on multiple channels. Why wouldn’t you try to do more than one at a time?

Gabriel [20:00]: Right. So in the testing phase, the things that people really messed up are the premature optimization, going too deep while you’re just trying to get error bars around these numbers, and the second is not really doing it quantitatively which we really haven’t mentioned. You have these three questions you’re trying to answer and you really should be trying to get hard numbers against them and then compare those numbers to another hard number which is your traction goal. Once you identify the right channel that is really promising that seems like it might actually work in the sense that the numbers look good, and if it looks like you started to optimize it and scale it, it would reach your traction goal, then you’re doubling down. This is the other area people mess up. This is the inner circle now. You hit the bullseye and you’re working on that channel not getting rid of the other channels. It’s really non-intuitive because say you have three promising tests in channels. Say you did a little PR and you did some social ads on Twitter and you did some offline meet ups. All three, they were promising. They had a little bit of success, but the Twitter ads were just well and above the rest. The right thing to do in our framework is to double down the Twitter ads and really focus on that. What people often do is they still focus a bit of their time on the PR and the meet ups because they know they are going to get some results out of them. The problem with that is their marginal benefit of focusing on the Twitter is much higher and when you really focus on it, what you’re really doing then is now focusing your testing effort on that one channel so now you’re uncovering the underutilized strategies and tactics within that channel. The only way to do that is to really focus. The time you’re spending on these other channels that yeah, they get you a little traction, but that’s time taken away from uncovering the best tactics you could use on the main channel. That’s the other area that people messed up when they’re focusing is not really doubling down on the one channel and getting rid of the other tests they were running.

Mike [22:03]: It almost seems like by focusing on the one channel you’re getting exponential results versus some of these other channels where you’re getting incremental or multiplicative results which are not comparable if you go far enough into that one channel that you’ve dug into or that you’ve identified as the one that’s going to give you the most traction. Is that an accurate way to portray that?

Gabriel [22:22]: Yeah. Not everyone can get the exponential growth, but that’s what you would hope. To do that, what you’re doing or advocating is you are becoming a worldwide expert at that channel. If you’re really focusing on say social ads via Twitter and Facebook, you’re really digging into all the case studies, all the forums, what people are on the platform cutting edge, what they’re saying about their own platform. For example, so right now Facebook video ads are kind of outperforming everything because Facebook is really focused on competing there. That may not be the case a month for now, but you want to be first to those tactics because when you’re first to those new tactics, those are where that exponential stuff really happens, the really high click-through rates and things like that. You want to be on the cutting edge of those. This just goes more into saying that going to underutilized places in the world gives you great conversion rates both channels and then tactics within channels. The only way to really do that is to really be in optimization mode and that requires a lot of effort and all that other effort is distracting you from getting there.

Mike [23:30]: Now one of the things that you talked about earlier was that you have to be in each of these channels and before you even do that you go and you define what your traction goal is going to be so that you have some sort of basis for measurement. Now how do you define that traction goal? What should that look like? Are there some ideas that you can share about how to define what that is or is that more specific to the type of product that you have?

Gabriel [23:54]: Yeah, I totally agree. That’s basically step zero. The other thing we added to the book was a preface about a little more of my history. That’s something I messed up early on. To give you a good example, I set out early on to get traction via SEO because that’s what I knew from my last business. But it turns out that I was pretty successful at that and spent a lot of time doing it and so I ranked really highly for the term new search engine to get to duckduckgo.com. I got number one on it, but it was just not enough people to really move the needle for what my traction goal really needed to be which ultimately was like 100,000 searches a day, not 10,000 which is where that ended up getting me. If I had sat down initially and realized my traction goal should be 100,000 searches a day, then I would have looked at SEO and either changed my SEO strategy completely or not done SEO to begin with. So it really is important to take a step back initially and figure out what your traction goal is. What I think that should be is a hard number that really moves the needle for your business and achieves some kind of significant inflection point of your business. That could be a number of things depending on what your situation is. The number itself, of course, will vary depending on your business, but for most people starting out that number is often one of three things. It’s how much traction do I need to get profitability, how much traction do I need to get financing, or what do I need to prove that I have product market fit. Those are usually specific numbers like I can look in the market and see which companies are getting financed and see how much traction they have in terms of growth or revenue or whatever the metric is in your industry and say, okay that’s what I need to hit. Then you can back out from that from your pricing about how many customers I kind of need and that’s the number you should be evaluating against these tests. You should definitely start identifying what that goal is. It goes right back to what kind of business you’re running too because if you’re not concerned with high growth or financing and you’re really concerned with paying your bills at a certain level of profitability, then that should be your goal. You should say I need to take home x amount a month and from that I can back out how many customers I need to do that then that should be your traction goal.

Mike [26:10]: Yeah. So those traction goals can either be the revenue that you’re specifically looking at or could be tied to a piece of functionality in your product. For example, a search engine, number of users is much more important, or not even users but like searches per month is important versus if you’re in a situation where you need to be able to pay the bills, you need to have that revenue coming in and you need to be able to tie those marketing efforts directly back to those revenue goals. You can tweak the numbers in terms of the price and the number of people coming in and just do some multiplication there to figure out is this really working for me, is this going to be a channel I can leverage or do I need to go someplace else? Depending on which of those situations you’re in and which of those metrics is important to you, you can then find what your traction goal is.

Gabriel [26:57]: That’s right. That exercise, that’s basically saying what is your business model and trying to clarify that initially, which is really an exercise everyone should do because, like you said, you can think about the pricing of your product. There’s a good post, I’m forgetting who wrote it, about the ‘hunting’ metaphor, but like hunting deer and elephants and different things, but it’s basically saying how much it’s going to take to get to a million dollar business which is what most people’s goal is initially based on what your price point is average revenue per customer. There’s wide ranges of businesses that get $0.10 a customer to $10,000 a customer and knowing where you are on that scale really influences what your goals are in terms of how many customers you need, which then changes everything about how you’re going to get traction.

Mike [27:44]: That article that you just mentioned was from Kristoff Jans and he wrote the blog article on ‘Five Ways to Build a One Hundred Million Dollar Business’. It’s kind of a graph of the size of your customer and how much money they’re paying you versus the number of customers you have. Obviously there’s this graph that goes along with it. I think the two extremes that he uses are one thousand enterprise customers each paying you $100,000 a year or, on the other end of the spectrum, you’ve got 10 million active people who you’re monetizing at $10 a year by selling ads for example. The metaphor is essentially you’re hunting elephants or hunting mice and how many of them do you want to go after and what’s your business model look like? I think it’s an interesting metaphor he used.

Gabriel [28:26] Yeah. He’s got a follow up too. He adds three more things there and he goes down to hunting flies because people wrote him back and they are like what about some of these other businesses? So he has an addendum article. It’s even a wider range. It’s really interesting because each of those categories are very different businesses, but has very direct implications for how many customers you need and how much traction you need and what your traction efforts are. So it’s really good to think about that ahead of time and think about really which type of business am I in? Which category am I on the scale?

Mike [29:00]: I think that leads back to another interesting point about if you start bringing that type of model in and start looking at, for example, a SaaS business versus a services business. Services businesses fit into this model where you’re probably charging them a heck of a lot more because you have to, because you’re interacting with them. You have to sell them on an engagement and it might be five weeks, it might be five years, but the reality is you’re charging them a heck of a lot more and those are kind of your elephants versus a SaaS model where, I guess, traditionally you want to charge as many customers as you can smaller amounts of money. But the problem is that it takes much longer to get that mass of customers. That kind of leads back to the analogy that Gayle Goodman from Constant Contact called the ‘Long, Slow SaaS Ramp of Death’. Getting that mass of customers that you need takes a long time. You can get there faster if you can charge fewer customers more money, which lends itself more toward the services model, but a lot of people are trying to get away from that if they’re trying to build product. There’s this balance that kind of needs to be struck and, as you said, it depends a lot on the model that you have behind your business. I think it’s interesting how that should be what is the piece that’s influencing what your traction goals are. I think that sometimes it’s a little confusing because the type of business that you want does not necessarily match up to the type of business that you’re going to end up with.

Gabriel [30:23]: Yeah. Right. What you’re getting at is people end up going through this and not doing this early and then they meet with kind of that harsh reality a little later on. That’s why I think it’s good to do this early and really think about hard numbers, what your goals are, because that will inform everything. Maybe you want to change what you’re doing initially.

Mike [30:44]: I think that’s a super important point to make just because going through this process you may very well find out, hey this isn’t the business that I thought it was, maybe I should go do something else. So what startups have impressed you with their ability to gain traction and why? What is it that has made them so successful?

Gabriel [31:00]: So we profile a bunch of ones in the book and each kind of has an interesting story that they did something really cool with traction. This concept, I was talking earlier with WP Engine and this engineer and his marketing I really liked because we literally had to name that channel because no one else really had named it. HubSpot and RJmetrics are two other companies that have really embraced that channel and does it pretty well. Moz would be another one. They’re all making complementary tools and sites and they’re using some of their engineering resources. The reason why it’s so cool is it’s non-intuitive that engineer resources are so sacred in a company that everyone thinks they should always use their product, but this is taking a little of those resources and using them for marketing. Developing this other tool that then drives the whole business. So HubSpot recently IPO’d, did that with their site called Marketing Greater where you could go type in your domain name and it would tell you all about how you’re doing in online marketing which basically every business who goes online needs. So they got millions of businesses through there and then from that they had a great lead channel to do inside sales and sell them on their main product. Moz has done the same thing and RJmetric which is a kind of cohort analysis company in data analytics, has done it with a bunch of different sites where a lot of their target audience is in house data development and teams who independently need to do database queries and things like that. So they made all these database kind of tools for these developers and then on there they educate them about RJmetrics. So I really love businesses go after these kind of underutilized channels. Another good example of another under utilized channel is publicity stunts which most people completely shy away from because it seems like they would be unscalable and repetitive. To some extent that’s true. There’s been a lot of ones that happen just at launch. A great example, an old example, but I like it also because I’m in Philly, for example is half.com, Josh Kopelman who currently runs First Round Capital. When they first launched half.com they had a city in Oregon renamed to half.com, Oregon, which was Half, Oregon, and they gave two jobs to the of the people there. The whole thing cost maybe $100,000. Got them national TV across the board, 40 million impressions before there were any social media. So back in 1999 and immediately vaulted them up. Six months later that company was sold for 300 million dollar plus. Then another company who does publicity stunts, Grasshopper, they really have invested in this over time and they have two employees completely dedicated to thinking up these publicity stunts and things they can do, run contests and things like that. Half of them fail, but they’ve gotten most of their traction through this effort because when they do take off it’s such a great press story. They get so much press it makes up for everything.

Mike [34:05]: Now at what point do you start taking into account the ROI on some of these channels because some of the things that you just used such as HubSpot, they have these different website marketing graders and things like that, but their price point is also substantially higher than I think your average run of the mill SaaS application. I think that their pricing starts at $200 a month and if you kind of extrapolate and say, “Ballpark it, I don’t know what these numbers actually are.” If an average customer sticks around for two years with them, that’s $4800. So for them it makes sense to fill that pipeline with as many people as they can because each of those customers is going to net them $4800. It becomes this awkward situation, especially for the people who are running really small businesses where the look at that and say, “Well that sounds great, but I can’t really afford to have an inside sales team calling these people even if that is going to be successful because I just simply can’t afford it.” How do you take those types of considerations into account?

Gabriel [35:01]: This is where the testing really comes into play. When you’re running these tests you’re trying to assess those three numbers, what the scaleability of it is, how many customers, how much it’s going to cost to acquire the customer, and is it the right customer? The second one, how much does it cost to acquire the customer, is the key one here. In this scenario, say the engineer and his marketing, they don’t need to have an inside sales team necessarily. It could be an off the shelf product that you sign up for in some kind of signup flow and that’s the test that you’re running. Will people convert from this and sign up and then how much would it cost to get them? How much contact would I need to have with them. You’re absolutely right. If you’re a small SaaS company you can’t afford any kind of personal contact like that. It costs too much money. So you need to be testing whether it will just work for your regular signup flow. I think that all comes out in the testing. That relates back to your traction goal and kind of knowing how much you can spend to acquire a customer.

Mike [35:57]: I think that’s a pretty good place to wrap it up. This book comes out, I believe, today you said, correct?

Gabriel [36:02]: That’s right. Today. October 6th.

Mike [36:04]: So if anyone’s interested in buying that, they can go over to tractionbook.com. We’ll link it up in the show notes. They can also get it on Amazon or Barnes and Noble, correct?

Gabriel [36:13]: That’s right. We have a couple other retailer links like IndieBound. They’re all at tractionbook.com.

Mike [36:18]: Great. If anyone wants to follow up with you, where would they do that?

Gabriel [36:21]: Twitter is best. My handle is @yegg. Y-E-G-G.

Mike [36:25]: Awesome. Well thanks for coming on the show Gabriel.

Gabriel [36:27]: My pleasure.

Mike [36:28]: If you have a question for us, you can call it into our voicemail number at 1-888-801-9690 or e-mail it to us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Out of Control by Moot used under creative comments. Subscribe to us on iTunes by searching for startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening and we’ll see you next time.

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