There is a common problem where startups have an unbalanced business model with too high of customer acquisition costs compared to lifetime customer value. This document discusses the importance of having a well-balanced business model with consideration for cost to acquire customers, monetization and lifetime customer value. It also covers how the internet has shifted power to customers and changed buying behavior, requiring sellers to have an intimate understanding of customers to be successful.

2.
Cost to Acquire the Customer (CAC)
Profit from that Customer (LTV)
There is a common problem: Startup Killer

3. An out of balance Business Model
Entrepreneurs are over-­‐optimistic
Cost to
Acquire a
Customer
(CAC)
Monetization
(LTV)

4. What we are looking for
A well balanced business model
Monetization
(LTV)
Cost to
Acquire a
Customer
(CAC)

5. The Big Power Shift
The Internet caused the disruption
Buyers are now in charge
Able to find all the information they need on-­‐line
Comparison shopping
Detailed reviews
Consumer reviews, complaints and comments

6. Buying Behavior has Changed
Please understand that I get dozens of these types of messages a week. I
simply do not have time to read them, dig into them, follow-­‐up on them, or
reply to them. The most effective solution to this problem is for me to
ignore the messages, which is what I usually do.
Finally, a small comment. As a customer, I find this
type of approach to sales to be largely annoying to
me and unproductive for you. We learn far more
about what we want to purchase by searching the
web, looking for customer references in blogs and
forums, word of mouth, and by finding white papers
on your site that concretely describe solutions to
CIO of Large Pharma Co.

7. Sellers need to change
An intimate understanding of the Buyer
Buying behavior
Likes
Dislikes
is the key to success

9. Buying Behavior has Changed
Outbound Marketing:
Annoying to your customers
Expensive
Increasingly less effective
What is the new process?
Google Search
Web Site
Reviews
Blogs & Social Media
Influencers
Trials or Free software / services
Requires Inbound Marketing thought processes

10.
The Internet has also given marketers some
powerful new tools
Web sites, videos, trials, etc. to convey rich information
Search Marketing (SEO/SEM)
The Social Graph
Viral acquisition
Behavioral tracking
Location information
A/B Testing
Etc.

11. Business Model Disruption in B2B
New Low Cost Customer Acquisition Models:
The Low Cost Sales Model
(Inside Sales instead of Field Sales)
The Touch-­‐less Conversion
Freemium

12. The Low Cost Sales Model (Inside Sales)
SolarWinds
2009 Revenues: $116 million
EBITDA: $60 million
52% operating margins
Others: HubSpot, JBoss, LogMeIn, Constant
Contact, Salesforce.com, etc.

13. The Touchless Conversion
ZenDesk
Common Funnel Metrics:
10% of visitors do a trial
20% of trials convert to paid
Extraordinarily scalable
Extremely low cost

14. Free Trials require different Product Thinking
The product is your salesperson
Extreme focus on:
Ease of installation
Ease of use
Clear instructions on how to test (short videos, etc.)
Fast proof that it works

16. Sales Complexity
No Touch Light Touch High Touch Field Sales
Freemium Field Sales
Self-­‐Service Inside Sales Inside Sales

17. How I assumed the two would relate

18. A rough estimate of CAC versus Sales Complexity
No Touch Light Touch High Touch Field Sales
Freemium Field Sales
Self-­‐Service Inside Sales Inside Sales
Rough Estimates of Cost of Customer Acquisition (CAC)
$0-­‐ $50 $1,000 -­‐ $3,000 -­‐ $25,000 $75,000
$10 $200 $2,000 $8,000 $75,000 $200,000

19. The relationship is roughly exponential
Clearly adding
Human Touch
dramatically
increases costs

20. CAC (logarithmic)
$100,000
10x
$10,000
$1,000 10x
$100
10x
$10
$1
Freemium No Touch Inside Sales Field Sales
Sales Complexity

21. High CAC, requires high scores for: Value, Pain, Urgency
Value / Pain / Urgency = LTV (logarithmic)
$1,000,000
$100,000
$10,000
$1,000
$100
Unprofitable:
LTV < CAC
$10
$1
Freemium No Touch Inside Sales Channel Field Sales
Sales Complexity

22. How SaaS changes Sales Complexity
Value / Pain / Urgency = LTV (logarithmic)
$1,000,000
$100,000
$10,000
$1,000
$100
$10
$1
Freemium No Touch Inside Sales Channel Field Sales
Sales Complexity

23. Levers you can use to move from Red to Green
Make it easy for customers to sell themselves
Make the first decision to work with your product easy
Simple product
Free versions, Free Trials, Open Source
Remove Complexity from closing the Sale
Remove IT (SaaS)
Eliminate committee decision making
Make the first financial commitment easy
$10,000 or below for enterprise sales
$250 per month for very small business SaaS

25. Able to leverage the Human Costs dominate:
Internet revolution Old world business model
Value/Pain/Urgency
$1,000,000
$100,000
$10,000
$1,000
$100
$10
$1
Freemium No Touch Inside Sales Channel Field Sales
Sales Complexity

26. Another trait of highly successful companies
A Sales and Marketing Machine

27. BUILDING
A SALES & MARKETING MACHINE
Brand
Advertising
Email Events
Marketing
PR
Webinars
Sales
Social Tradeshows
Media

28. ?
WHAT IS A

29. CLEARLY DEFINED
LEVERS THAT YOU
PREDICTABLE
PULL TO MAKE IT GO
FASTER
SALES & INSTRUMENTED
SCALABLE MARKETING WITH GREAT
MACHINE 9 METRICS
AUTOMATED COST OPTIMIZED

30. HOW DO YOU GO ABOUT
BUILDING ONE OF THOSE?

31. 9 STEPS

32. 4
WHY 4 FIRST?
BECAUSE 1, 2 AND 3 ARE NOT OBVIOUS SO WE WILL COME BACK
TO THEM AT THE END AFTER WE HAVE SEEN WHY THEY ARE
SO VALUABLE

33. 4 ALIGN
CREATING LEADS THAT HELP SALES
CLOSE MORE
DEALS

34. Sales CLOSED
DEAL

35. Blogging
Social Media
eMail
Campaigns
CLOSED
SEO Sales
DEAL
Webinars
SEM
PR

36. RULE NUMBER 1
directly contribute towards
closing a sale,

37. Sales
CLOSED
DEAL

38. RULE NUMBER 2
If the cost per lead is too high,
Exception to this rule: If you can recover cost through:
higher conversion rate to closed deals
higher average deal size

39. Sales
CLOSED
DEAL

40. 5 LINK

41. CLEARLY LINK FLOWS FROM
START TO FINISH
$
SEO LANDING FREE EMAIL SALES CLOSE
PAGE TRIAL CAMPAIGN TOUCH
1. At the end of every action, there should be a clear link to the next action
2. The overall flow from start to finish should be carefully designed

42. AN ORGANIZATIONAL

43. PURCHASING STAGES
PURCHASE
CONSIDERATION
CLOSED
DEAL
AWARENESS

44. AN ORGANIZATIONAL
METAPHOR FOR THE KEY
FUNNEL STAGES
SALES
MIDDLE OF THE FUNNEL
CLOSED
DEAL
TOP OF THE FUNNEL

45. WHAT IS TOP OF THE
FUNNEL?
customer is not aware customer has a
they have a problem, or problem and is
that your product looking for a solution
category exists
GENERATE GET FOUND
AWARENESS

46. WHAT IS TOP OF THE
FUNNEL?
RAW LEAD
GENERATE WEBSITE
AWARENESS

47. WHAT IS TOP OF THE
FUNNEL?
RAW LEAD
GENERATE WEBSITE
AWARENESS &
GET FOUND
Inbound marketing
Outbound marketing

48. WHAT IS THE MIDDLE OF
THE FUNNEL?
NURTURE QUALIFY MQL
(MARKETING QUALIFIED
LEAD)
SEGMENT

49. PROBLEM:
RIDICULOUS, I GAVE
SALES SAYS THEM A TON OF LEADS.
MARKETING FOLLOW UP ON THEM
PROPERLY.
THEM
ENOUGH LEADS
MARKETING
SALES

50. CAUSE:
SALES CALLS A FEW
UNQUALIFIED LEADS,
AND FINDS THEY ARE
WASTE OF TIME -
THEY STOP CALLING
THE REST OF THE
LEADS
SALES

51. SOLUTION:
GET AGREEMENT ON
THE QUALIFICATION
CRITERIA NEEDED TO
BE ABLE TO PASS A
LEAD ACROSS TO
SALES (MQL)
MARKETING

52. SALES FURTHER QUALIFIES THOSE
SALES LEADS TO
FIND
OPPORTUNITIES

53. USING BANT
BUDGET
AUTHORITY
NEEDS
TIMING

54. COMMON LEAD STATES
RAW LEAD CLOSED
DEAL
MQL OPPORTUNITY
(MARKETING QUALIFIED (SALES QUALIFIED
LEAD) LEAD)

55. 6 AUTOMATE

56. SALES
MIDDLE OF THE FUNNEL
CRM
CLOSED
MARKETING DEAL
AUTOMATION
TOP OF THE FUNNEL
INBOUND
MARKETING

57. LEAD SEGMENTATION

59. 7 MEASURE
"IF YOU CAN NOT MEASURE IT,
YOU CAN NOT IMPROVE IT."
- LORD KELVIN

60. THE KEY METRICS
CAMPAIGNS
TO DRIVE
TRAFFIC
VISITORS
OVERALL
CONVERSION %
CONVERSION
%
TRIALS
(BY LEAD SOURCE)
CONVERSION
%
CLOSED DEALS

67. 8 ANALYZE

68. Suspects
Suspects
Suspects
Suspects
Suspects
Suspects
Suspects
Suspects Suspects Suspects
Suspects Suspects
BUT EVEN IF YOU ARE MICROSOFT,
CISCO, ORACLE, OR GOOGLE
YOUR FUNNEL WILL HAVE
BLOCKAGE
POINTS

69. IDENTIFY
YOUR BLOCKAGE POINTS

70. HOW?

71. WHAT IS STOPPING ME
FROM INCREASING SALES BY 5X ?

72. 9 IMPROVE

73. IN DIAGNOSING MANY FUNNEL BLOCKAGE POINTS,
I HAVE FOUND THAT THERE IS A
CLEAR

74. YOU ARE HOPING YOUR
CUSTOMERS WILL DO
SOMETHING
THAT THEY ARE
NOT MOTIVATED TO DO

75. YOU DESIGNED YOUR FUNNEL
THE WAY YOU HOPED IT WOULD
BUT YOU MAY NOT HAVE THOUGHT ENOUGH ABOUT
VIEW

76. JBOSS EXAMPLE
PUT A REGISTRATION FORM
ON THEIR WEB SITE BEFORE
A FREE DOWNLOAD
IMPACT
CUT THE DOWNLOAD RATE
BY MORE THAN 10X

77. GET INSIDE YOUR
CONCERNS
- Hate being sold to
- want to get spam
sales emails

78. UNDERSTAND WHAT
MOTIVATES THEM
CONCERNS
MOTIVATIONS
- Want to solve my problem
- Recommended by a friend
- Education
- Data/ information reports
- Entertainment
- Free stuff

79. CREATE A SOLUTION THAT
ENTICES THEM AND ADDRESS THEIR CONCERNS
CONCERNS
ENTICE &
ADDRESS CONCERNS
- Customer testimonials address
vendor risk
- Free trials address product
viability and fit concerns

80. EXAMPLE: DRIVING TRAFFIC TO YOUR WEB
SITE
GETTING FOUND
Not going to find your site unless:
- On 1st page of Google search
concerns - Recommended by trusted
source
- Referred to in social media or
blogosphere

83. LESSONS FROM WEBSITE
GRADER
Free tools drive viral spread
Low customer work required
High value delivered
Score leverages competitive urge
Builds trust through clear
demonstration of expertise

84. GOOD LINKAGE TO NEXT STEP

85. using engineering for marketing

86. USING DATA TO DRIVE WEB
TRAFFIC
SYSOMOS: SOCIAL MEDIA MONITORING
LEVERAGED THEIR DATABASE TO
CREATE BLOG POSTS WITH DATA ON
TOPICS OF CURRENT INTEREST:
IRAN ELECTION RIOTS
FACEBOOK USAGE

88. LED TO:
SYSOMOS ARTICLES IN
ECONOMIST, NY TIMES
WEB TRAFFIC TO READ THE FULL REPORT
LEADS IMPRESSED BY THE CAPABILITIES
OF THE SOFTWARE

89. GETTING CUSTOMERS TO SIGN UP FOR A
TRIAL
-
-
spam email
concerns - Yet another password
to remember

90. RE-THINK THE PROCESS
CONVENTIONAL SIGN UP CONVERT
APPROACH FOR TRIAL WOW! TO
CUSTOMER
WOW! FIRST, CONVERT
SIGN UP
TO
REGISTER LATER WOW! FOR TRIAL
CUSTOMER
Source: Josh Porter Designing for Social Traction

92. 1
4
2
3

93. PROBLEM:
GETTING A MEETING

94. GETTING TO EXECUTIVE
DECISION MAKERS
TECHCRUNCH FOR
INSURANCE CLAIMS

95. DROPBOX: SIMPLE FILE SHARING SOFTWARE
Get you hooked for free
Storage slowly increases to the point where you need to pay
But by then they have established trust
And it is hard to move your data that is shared with others

96. First Contact Sell
Build Build
First Contact Sell
Relationship Trust

97. SELLING IS
ONCE YOU HAVE ESTABLISHED TRUST

98. HOW?

99. VALUABLE CONTENT
EDUCATION
INFORMATION
ENTERTAINMENT
WITH ZERO SELLING

100. THE KEYS TO SUCCESS
DEEP UNDERSTANDING OF YOUR CUSTOMER
What do they like/need?
What motivates them?
What are their problems?
What does their boss expect of them?
etc.
Combined with
OUT-OF-THE-BOX THINKING

101. APOLOGIES
MY EXAMPLES ARE ALL SOFTWARE COMPANIES
THIS APPLIES EQUALLY WELL IN OTHER BUSINESSES

103. THREE NEW STEPS AT
THE BEGINNING OF
THE FUNNEL DESIGN

104. 1
IDENTIFY
IDENTIFY ALL THE PEOPLE INVOLVED IN THE
PURCHASE DECISION

105. 2
UNDERSTAND
SKETCH OUT THEIR BUYING PROCESS AND
CONCERNS AT EACH STAGE

106. 3
ENTICE
ADD THE STEPS TO ADDRESS THEIR BUYING
PROCESS
AND:
ADDRESS THEIR CONCERNS
ENTICE THEM

107. SUMMARY

108. WE WENT FROM
THIS:
1. Align
2. Link
3. Automate
4. Measure
5. Analyze
6. Improve

109. 1. IDENTIFY
2. UNDERSTAND
3. ENTICE
4. Align
5. Link
6. Automate
7. Measure
8. Analyze
9. Improve

110. THE NINE STEPS
1. IDENTIFY Identify people in purchase decision
2. UNDERSTAND Address their buying process and concerns
Design actions to pull them through buying process
3. ENTICE
& address concerns
4. ALIGN Ensure funnel actions lead directly to sales
5. LINK Link every funnel action to the next step
6. AUTOMATE Use software to automate
7. MEASURE Measure key funnel metrics
8. ANALYZE Identify blockage points
Brainstorm better enticements and ways to address
9. IMPROVE
concerns

111. SALES-DRIVEN
FUNNEL DESIGN
TO A
CUSTOMER-CENTRIC
FUNNEL DESIGN

112. CASE STUDY
JBOSS

113. JBOSS
- FREE open source software
- downloaded 5 MILLION times

114. The Highlights
Breakthrough Business Model
Open Source
A great example of the power of Free
5 million downloads
The first challenge: How to monetize
The second challenge: Conversion
While keeping CAC low
Solution: Build a Sales & Marketing Machine

115. ORIGINAL BRAINSTORMING SESSION

116. THE FIRST BLOCKAGE POINT
5 million users had downloaded JBoss
But none had given their names
The problem:
email registration in front of download reduces
conversion rates significantly

117. JBOSS example
NEEDED: a carrot to incent them to provide
an email address
SOLUTION: give away the documentation
for free
RESULT: 10,000 leads per month

118. JBoss -­‐ Sales & Marketing Machine
Enterprise
Suspects Closed Deals
Rollouts
Web Web Phone Inside
Leads Scoring Call Sales
Lead
Nurturing

119. Metrics: The End Goal
4:1 3:1 4:1
(25%) (33%) (25%)
Raw Web Closed
Tele-­‐ Tele-­‐
Leads activity Deals
marketing sales
scoring

120. Using the model to work backwards
4:1 3:1 4:1
Raw Web Closed
Tele-­‐ Inside-­‐
Leads activity Deals
marketing sales
scoring
To do $4m in the month:
If Average Deal Size is $10k
Need $4m divided by $10k deals to reach target = 400 deals
Means 1,200 deals being worked in Inside sales (400x4)
Know that each rep can work 60 deals at a time, means 20 reps
Means 3,600 telemarketing contacts (1,200x3)
Means 14,400 Raw Leads (3,600x4)

121. THE NEXT CHALLENGE:
INCREASE LTV
Multi-­‐pronged approach
Add services to the subscription (beyond just support)
Key service was JBoss Operations Network
Broaden the product line and upsell
JBoss Enteprise Middleware Suite (JEMS)
Scalable Pricing
4 axes to drive pricing higher
Result
Drove average deal size from $10k to $50k
While maintaining the same pipeline flow and conversion
rates

122. THE RESULTS
Before venture financing 70
2003 $2m 60
Early 2004 50
venture round closes 40
30
Bookings Growth:
20
2004 $11m
10
2005 $26m
0
2006 on plan to do $65m 2003 2004 2005 2006

123. JBOSS SUMMARY
Business Model disruption
Gave the product away entirely free
Monetized support & management
Low CAC
Leveraged free and virality to acquire non-­‐paying customers
Sales & Marketing Machine
Careful study of customer motivations
Low cost Sales model
Excellent Metrics
Scalable pricing model

124. For More information
Visit my blog at www.forEntrepreneurs.com