I recently read this thought-provoking article from the very sharp Andrew Chen. He bravely tackles the prickly debate of startups with a business model vs startups without a business model. His conclusion tries to simplify the whole situation: yes, business model is important…it’s just not that hard. There are many, many off-the-shelf ad platforms, payment providers, and even mobile payment tools. No, figuring out how to make money isn’t hard. It’s figuring out how to attract enough of an audience to make money that’s hard.
Andrew’s takeaway is that we should instead focus on marketing our products*. And absolutely, we need to make people aware of our products. But my takeaway is different: I think we need to focus on retaining customers who will pay us again and again.
Why retention over marketing? Largely, it’s far cheaper. You might spend $50 in ads to get one user, but only $4 for 10 minutes of a customer service rep’s time to retain a customer by responding quickly, pleasantly, and efficiently…not to mention, this happy customer may then tell his friends about the great service he received. Seth Godin calls this turning someone into a True Fan vs marketing to Strangers. It just makes financial sense.
Sadly, the majority of companies focus on acquisition, rather than retention. It’s sexy. They get to be Mad Men. But they let easy-to-retain customers drip through the holes in their bucket while they spend lots of time and money trying to pipe new ones in. So here’s my challenge to you: if you already have customers, stop putting intense resources into A/B testing homepages and making referral programs, just for a bit. Instead, focus on where customer churn is occurring, how you can provide great customer service, and what low-hanging fruit you can address to increase customer satisfaction. It’s worth it (literally).
*He also talks about building great products, which I do agree with.
Bucket photo via Bigstock.