Tuesday Aug 17, 2010 by David Skok - General Partner, Matrix Partners
This blog post focuses on how B2B companies can optimize their customer acquisition funnels using a customer-centric methodology to analyze and remove blockage points.
Acquiring customers in the B2B world involves using a variety of marketing and sales steps with the goal of converting prospective customers into paying customers. The process is often thought of as a funnel (see diagram above) where you pour in suspects at the top, and various steps in the process, some percentage of prospects successfully convert to the next stage, making the funnel narrower as the process evolves.
No matter how large or successful your business is, you will have at least one place that is a blockage point in your customer acquisition funnel. This is the point where the conversion rates from one stage to the next are not satisfactory, or the point where you have a scaling problem, (i.e. you cannot profitably increase the number of people coming out of that part of the funnel because you have maxed out the capability of one marketing or sales technique). If you solve that blockage point, usually it will cause another to appear somewhere else in the funnel.
As an example, you may have too few visitors coming to your web site, which you see as the top of your funnel. Or you might have plenty of visitors to your website, but too few of them signing up for your trial.
In this blog post, I will talk about a method that I have found to be highly effective at removing blockage points. There is enormous power in this exercise, as removing blockage points will increase conversion rates in your funnel. Readers of my prior blog posts on the importance of lowering the cost of customer acquisition (CAC), will know that increased conversion rates have a huge impact on increasing sales and lowering the cost of customer acquisition.
The easiest way to identify your blockage point is to ask the question: “What is stopping us from increasing sales by 5x?”. Common answers to this might include:
If you are a new startup just going to market, one of the greatest causes of problems in your customer acquisition funnel is that you have not yet found product/market fit. It is important to diagnose if that is the case, as the wrong diagnosis will likely lead to management wasting a lot of money on sales and marketing for a product that is not right. The correct course of action if this is the case, is to focus all your energy and attention on solving product/market fit. While you are doing this, you should limit your spending on sales and marketing to just the minimum level required to have adequate amounts of customer interaction to determine where your customers have the highest levels of pain and urgency, in an area that you can provide a solution. You will need to conserve your cash to continue to pay for product development to evolve a product that does fit the market need.
Solving for product/market fit is a topic that has been widely discussed elsewhere on the web, with great contributions coming from Steve Blank, and Eric Ries with the Lean Startup concept. This primary topic of this post is aimed at companies that are confident about their product/market fit, and who are now working on the next problem that should be addressed: optimizing their customer acquisition funnels.
After many years of helping to diagnose problems in different companies’ customer acquisition funnels, I have observed that there is a common cause of blockage points:
For example, you may be hoping your prospects will come to your web site in droves. However you may not have solved the problem of how to make them aware of your site, and secondly of providing a motivation or reason for them to want to visit it. (A quick look at your web site might reveal that it is entirely sales oriented, and contains no content of interest to them.) Alternatively, you may be hoping that your prospects complete your on-line registration form and give you their email address, but they will find that step annoying, and be concerned that you will spam them in the future.
This happens because most companies design their customer acquisition process around their own view of the world, instead of first taking the time to understand the customer’s buying process, and their concerns at each stage.
Readers of my other article, Building a Sales and Marketing Machine, will know that I recommend designing sales processes from the outside in. i.e from the customer’s point of view. This involves mapping out the customer’s buying cycle first, and then designing a process to fit that. However since most companies have already got a sales process in place, that advice is less helpful to them. For those startups, the technique I will describe below will be more helpful as it will focus on fixing what is most broken in their current funnel.
Once you have identified your blockage points, the best way to start to solve them is to get inside your customers head and study their concerns at this particular stage of the sales process:
These concerns represent the friction in your sales process. Mapping these out clearly in a written form will give you the basis for the next step, which involves studying the possible things that you could use to motivate them to take the step or action that you want them to take:
Think of the concerns as being the friction in the process, and the motivations as being the forward pulling forces that you can use to overcome the friction.
The art is finding the right motivation that is great enough to overcome their concerns, and have them move forward in the sales process. This is where you need to muster your brightest and most creative thinkers to brainstorm the issue. Since customers have such an aversion to being sold to, and now have real control over the buying process, the old ways of moving them through a conversion funnel will usually have mediocre results. Getting superb results requires thinking outside the box and creativity.
Below I will walk you through a few examples to help illustrate how this works.
One of the most common blockage points for startups is right at the very top of the funnel: i.e. how to get found on the web. If you can’t even start a dialog with a prospective customer, then you have no opportunity to sell them.
A very common misperception amongst first time entrepreneurs is “If you build it, they will come”. Given the huge pressures of today’s always-on lifestyle with iPhones, BlackBerries, instant messaging, SMS, Twitter, social networks, etc., the average buyer is suffering from severe information overload. Their most scarce and valuable commodity is rapidly becoming their time and attention. Getting their attention by simply creating a web site and hoping for viral spread will not work in this environment.
Lets start by writing down their concerns and motivations:
To get them to pay attention to you, you will want to think about giving them something valuable to earn their attention.
A good example of using a free product/service as a motivator to drive traffic to your web site is HubSpot’s WebSite Grader tool. HubSpot is a company that sells a SaaS product aimed at helping small and medium size businesses implement Inbound Marketing. The components of their product include blogging, SEO, social media, etc. (In full disclosure, I am an investor in HubSpot.)
HubSpot’s two most powerful tools for driving traffic to their web site are a) their blog, which is full of valuable educational material on Inbound Marketing, and b) the free products, WebSiteGrader, AlertsGrader, TwitterGrader, etc. The first of these, WebSiteGrader, gives customers a way to find out how well their web site will perform in Google searches (SEO), and what can be improved to make it perform better. This leverages the third motivation in our list above: “If I can get something for free, and it will help me with my life/work, then that is valuable to me”:
There are several powerful lessons to take from WebSiteGrader in how it works to drive customer motivations to pull them through their sales funnel:
Contrast HubSpot’s approach to driving traffic and and providing value for free with the worst types of website that require you to give them an email address before they will allow you watch a marketing video that will tell you about their product. If you’re like me, this will drive you mad, and make you immediately dislike the vendor.
The key to success is to provide value first, which builds trust. Then at an appropriate time the customer will be more willing to offer their email address.
HubSpot’s WebSiteGrader tool is a great example of another idea that is really powerful: using engineering resources for marketing. The power of your engineers is that they can build things that can be used by your customers and provide value to them. These are powerful motivators to overcome friction.
These tools can also be hugely scalable. Compared to the traditional spend that you might put into marketing programs, this can frequently be a far better investment, and be more effective at building the right kind of relationship with your prospective customers.
If you are wondering what to offer to your customers to provide value, I have a suggestion to make: think Education. HubSpot’s highly trafficked blog is a great example of this in action.
Get inside your customers head, and understand what area they are most interested in learning about, and offer educational material in that area. It helps if this is in the same area as your product/service, but it is not essential. There is an interesting thing that happens when someone learns from material that is well put together and intelligent: They develop respect and trust for the person that is educating them, and will listen to suggestions that come from that person, including for products and service. Think of the following situation: you attend a course on social media marketing, and really like the material and the teacher. At the end of the course, they tell you that the product they use to manage their Tweets and other social interactions is XYZ. You are highly likely to go out an buy XYZ for that job.
You may have heard of consultative selling. In that role, the consultant places themselves at the same level as the customer. In the educational model, the teacher who does great work is automatically placed into a superior role to the person that is doing the learning. This is an important insight, and can be used as powerful tool.
Important note: most companies that I talk to think that they are doing this well, but a quick review of their materials reveals that what they think are educational materials are just thinly disguised sales collateral. This will not work, and will actually turn customers off. To do this well, you may need to hire a dedicated writer who is measured on the quality of material, traffic, and positive comments they generate.
Many companies collect interesting data as part of their business. Frequently it is possible to use insights gained from that data to create interesting articles or services that can be used to drive traffic to your website.
One good example of this is a company called Sysomos (recently acquired by Marketwire). Sysomos provides a SaaS service to help enterprises monitor the conversations going on in blogs and social media that might affect their company. The backbone of the service is a series of crawlers feeding data in to a huge and constantly expanding database. Sysomos uses the data that they have to search for interesting insights on any current topic, and then publish blog posts. Topics they have covered include insights on Twitter usage, social media and the Iranian election, the oil spill, Facebook, etc. Since the topics they look at are of high interest, these blog posts often get picked up by national media, such as The New York Times, and many other bloggers. These published articles and blog posts have led to major traffic increases for Sysomos’s main web site, which they convert to free trials, and then closed customers.
After reading the above, you might be wondering how you could do something similar, but realizing you are held back by not having a data source. Don’t let this hold you back. There are several examples of companies that decided to issue surveys to get collect that data, promising people that participated that the would have access to the results. Amongst businesses there is a strong desire to learn how they stack up relative to the peers and the best in the industry.
One example of a firm doing this is PriceWaterhouseCoopers, who collect data on venture funding, and publish a report called the MoneyTree. This helps them get the attention of VCs and venture backed companies who are their prospective customers.
Another example of this is a Dutch SaaS business intelligence company called Mirror42. Mirror42 has created an on-line KPI repository that tracks the Key Performance Indicators (KPIs) that are used in various different vertical industries. They have over 200,000 users signed up to use and contribute to the database. Customers can also compare their performance in this KPIs to industry benchmarks, which is highly valuable. Mirror42 then uses these customer relationships to market their SaaS offering.
A important note for those readers considering the concerns and motivations of people that they are wanting to attract to the top of their funnel: there are two actually two different classes of customers that you will be dealing with:
For Type A customers, you need to Harvest Demand. For Type B customers you will need to Create Demand.
For Type A customers, the most likely starting point for an interaction will be a Google Search, since they are likely looking for a product to solve a particular need. For Type B customers, the problem is much harder, and will likely cost you more effort and money. You will have to reach them in some other way, and get them to hear about your product. The very best method is having them hear about you from a trusted source such as a friend, respected blogger, main stream press, etc.
These two audiences require different marketing programs, and have different motivations.
Another frequent problem are in conversion funnels is the point where you want your visitors to register and provide you with their email address or other contact information.
Let’s look at their likely concerns and motivations:
Many of the good marketers that I have worked with talk about the time to Wow!. That is how long it takes before your customer gets to the point of Wow! (i.e. experiencing some gratification from use of the product). The conventional approach to registration is to make the customer register before they can get to experience the Wow! moment and get some gratification.
If you are doing this, you may want to try a different approach, and place the Wow! moment before you ask them to register.
Examples of companies that have done this well are:
JBoss, the Open Source Java middleware company, leveraged two powerful customer insights to create a very high growth business. The first was that giving the product away completely free would create immediate interest and viral growth. This worked extremely well: the free product was downloaded over 5 million times.
However that first insight created the next bottleneck in the funnel to solve: the millions of users that had downloaded the product for free had not registered, as JBoss felt that putting a registration in front of the download would greatly reduce download volume. In order to market paid services to that user base, JBoss needed to get the contact information for these users. At the time that we did the brainstorming session to apply this methodology, they were charging money for the documentation, which was bringing in a very nice steady revenue stream of $27,000 every month. The solution to the blockage point was to offer the documentation for free, and use that as an incentive to get them to give us their email address. Because of the significant revenue hit this entailed, it took a while to get everyone’s buy-in, but once implemented, the process generated 10,000 leads per month, which grew over time to 16,000. (The full story behind JBoss’s success can be found here.)
The second company that I started in 1986 was called International Software, which later became the European branch of Corporate Software. 1986 was the time when PCs were just starting to be adopted by enterprises. Before International Software, the typical way you purchased a PC and associated software was through a store like ComputerLand, or BusinessLand. However the problem with these stores is that they primarily focused on the hardware, and didn’t stock more than 5-6 software titles, and certainly didn’t know how to demo them or support them. We spotted an opportunity, create a new channel that only sold software, and focused on the needs of enterprise buyers. We would stock a huge range of products, and provide excellent consulting advice on which products to use, as well as great support.
When I first started the business, I purchased a copy of the Times 1,000 top companies in the UK, and started at the top, dialing the biggest companies, trying to reach their PC buyers. Not too surprisingly, I would get to voicemail, leave a message, and not get a call back. This was a frustrating blockage point, and there was clearly lots of buyer friction at this stage in the sales funnel.
I started brainstorming for a solution: One of the key parts of our service was content. We published The International Software Guide, a 600 page book that reviewed almost all the software products available for the PC at that time. The book was given to our customers as part of our service if they purchased their software from us. It was highly impressive (see below).
My insight was that if I sent them a free copy of the book first, and then asked them for a meeting, I might provide them with proof that we were different, and capable of providing more value to them than all the other vendors calling on them. The results were spectacular: I went from a 2-3% success rate in getting meetings to around 90%!
(Once in the meeting, our value proposition was so compelling that we converted approx. 50% to customers within a month of the first meeting. The company grew to $100m in sales in four years, and was incredibly capital efficient.)
In today’s world we have the web, and print media like that book are a thing of the past. Using compelling high value content on the web is the modern equivalent of the above story, and is exactly how companies using Inbound Marketing are driving web traffic.
One of my portfolio companies, Enservio, sells high value products and services to Insurance companies. As part of their sales process, they need to get to senior executives in the insurance industry that are capable of making decisions. Not surprisingly, the average sales person will struggle if they simply try to cold call those executives.
While sitting in the audience of a TechCrunch 50 presentation, the CEO, Jon McNeil, had the brilliant idea to hold a similar conference for executives in the insurance industry, bringing together the very best startup companies that were innovating in the insurance industry. They put together an annual Claims Innovation Summit, and pulled in prestigious speakers from highly respected analyst and consulting firms, and invited speakers from within the industry to add valuable content around the startup presentations.
The net result was a great success, attracting executives that their sales people could never get to. Not only did they get hard-to-reach executives to the event, but due to the incredibly professional way in which they managed the event, they built trust with those executives, which is a key requirement before a sale can be completed. (A key part of that professionalism was to avoid the temptation to use the event as a selling platform, and to stick to valuable educational content.)
The other benefit of getting executives to an event like this is the amount of time that was available for relationship building. This worked far better than a typical short meeting in an office setting.
Most web sites represent a mini-funnel in a marketing process where you’d like to move your customer from through a series of steps/pages to the point where they will sign up to purchase your product, download your trial, etc.
The great thing about web sites is that we can get precise analytics that tell us where the bottlenecks are occurring. To improve the conversion rates at these bottlenecks, I have found it highly valuable to apply this same technique: i.e. document the customer concerns and brainstorm the possible motivations that could be used to help get them to move through the bottlenecks.
One of the other powerful techniques I highly recommend for this purpose is A/B testing. When coming up with new ideas for content on pages, split the traffic so that one half goes through the new page and the other half goes through the old page. Or try two variations of the new page with different wording to optimize the conversion rate. Once you have found the winner, repeat until it’s clear which messaging is having the best effect.
Take a look at the Posterous screen shot below. It has some great examples of how to address customer concerns:
One thing missing from the above screen that might add value to lesser known sites is some quotes from reviews that say positive things about the product. (I also personally like to see a video demonstrating any new product right on the front page, as it is the easiest way for me to see how a web service works.)
It is important point to realize that all sales and marketing funnels have blockage points. As soon as you remove one blockage point, another one will appear elsewhere in the funnel. This means that there is always room to improve. I recommend using quarterly brainstorming sessions where the key execs including the CEO, heads of sales, marketing, and product, get together to work on coming up with creative ways to address the latest blockage point using the technique described in this post: Analyze the customer’s concerns and seeing if it is possible to come up with a motivation that will overcome those concerns.
When running these sessions it is highly valuable to have a flow chart diagram of your sales and marketing funnel process as one of the starting places for discussion. Without this diagram, you are unlikely to find that all the players have the same picture of what is going on.
I also recommend that the customer concerns, and possible off-setting motivations, are written down on a white board or similar during the meeting.
In my own startups, I found that I naturally gravitated into the role of being the person who tried to think like the customer, and represented their point of view to the rest of the group. In other companies, it is not always going to be clear which executive has the best natural tendencies to play that role. I recommend that you choose one person from the executive team to play that role, and encourage them to become intimately familiar with how your customers think. This will only happen as a result of them spending time with a lot of customers listening and and asking questions. Then in the quarterly brainstorming meetings their job will be to ensure that the voice of the customer is heard loud and clear.
Elsewhere in this blog, I have talked a lot about the importance of metrics (here and here). If you don’t measure your funnel’s performance, you have very little chance of understanding how to improve it. also when designing any of these creative solutions, you will likely want to understand how effective your solution is, and whether is providing a good return in the investment you made. They key metrics you need are shown in the diagram below:
You will want to measure the number of prospects going into each stage, and the conversion rate to the next stage. You will also care about the overall conversion rate of prospects from the top of funnel to closed deal, and the average deal size.
The shape of your funnel will likely vary for each different lead source. e.g. a leads from Facebook ads may not convert well into trials, but those that do convert to trials may have a higher conversion rate to closed deals than normal web traffic, and the deal sizes may be larger. That means you will need to track the funnel metrics separately by lead source.
These metrics will show you your funnel blockage points, and help you understand whether your actions to improve funnel flow are working.