I’ve done two enterprise software startups, and the biggest change between them was the shift in the customer acquisition landscape. In the early days of Backupify (2009 – 2011), if you were a company doing SEO, lots of content marketing, re-targeting, and social media marketing, you were cutting edge and not everyone did those things. You could still arbitrage keywords or some marketing channels. But by the time Talla started marketing to customers (late 2016), everyone was good at all of those things. Marketing platforms make it all so easy now that it was hard to hack marketing to acquire customers on the cheap.
The other problem is that no new customer acquisition channels have emerged in the last 10 years. The last real “innovations” (if you can call them that) are Account Based Marketing and lead capture with chatbots. Those might make your marketing linearly more efficient, but they aren’t game changers.
On the consumer side, it isn’t quite as bad because at least the Instagram influencer channel is relatively young and some startups of the last few years have been able to take advantage of it, but, customer acquisition costs have gone up for consumer companies too.
I was reminded of this today when I read Fred Wilson’s post on the topic. I wanted to write about it because most of my investing theses are around robotics and machine intelligence but I have one that isn’t – that B2B marketing is broken and needs to be fixed. I’m going to take a different approach than Alex Iskold did in his post. The customer networks he references are definitely rising as a thing. (This is part of why I invested in Capiche) But I think the fundamental problem is deeper. I think how companies buy and sell software needs to change. This process of pounding people with calls and emails from SDRs is terrible for everyone, but, it’s exactly what we all do because it’s still the best strategy.
For a clue to what the new world will look like, I want to reference the MidMarket CIO Forum. We used to go to these at Backupify. The conference flies in a bunch of CIOs for free, throws a party, has some keynotes and sessions from influential peers, and then makes them sit in small groups through 6-8 vendor pitches over 2 days. When I asked the CIOs why they came to a thing that forced them to listen to pitches, they all gave roughly the same answer. “Well, I do need to buy stuff, and I do want to know what is out there and what is new, I just don’t want 30 phone calls and 60 spam emails everyday – I want a more controlled process.” I think the secret to solving the customer acquisition problem is to flip the buying process on it’s head and somehow give more control to the buyer to manage the process rather than the seller to force them through it, and I’m excited by new emerging ideas like Vetd, which has a real shot at solving it.
But we still have some time, probably 3-4 years, before a new model of buying takes hold. If you are a startup that hasn’t hit major scale yet, what do you do in the meantime? Here is my advice.
- Focus on one channel, whichever one is best, and make it ultra efficient. You are trying to find one channel where you can eke out some gains others can’t, and one way to do this may be hyperfocus.
- Try partnerships. For the last decade, I’ve discouraged startups from looking for customer acquisition related partnerships early because getting those deals in place is slow and difficult for startups. But now that all customer acquisition is slow and difficult partnerships earlier in the life of a startup sometimes make more sense, particularly when big companies are looking for innovative ideas.
- Consider channel sales. While channel sales can also take a long time to get off the ground, and require just as much, or more work than direct sales, in a world where customer acquisition has become so expensive, it makes sense to consider it.
If you are starting a new company, customer acquisition is a bigger challenge than ever before. I’m already seeing more companies with Business Development roles earlier in the company lifecycle, and more partnerships signed in the first year, but the whole customer acquisition ecosystem (particularly for B2B) still needs to change. If you are an entrepreneur looking for a problem to work on, this is a good one to consider.