Why You Don’t Need to Worry About Efficiency in Your Early Days
At a mature business, perhaps the two most important variables — the factors that decide whether the company lives or dies — can be summed up in these six letters: CAC and LTV. CAC stands for customer acquisition cost, which signifies the total cost of acquiring a new customer including marketing, cost of goods sold, overhead, and everything else. LTV stands for lifetime value of a customer, which means the total amount of revenue an average customer generates for the business.
Profitability is intrinsically tied to the relationship between these two variables. If the lifetime value of a customer outweighs the cost of acquiring them, you make a profit. If it doesn’t, you don’t. Because of this, mature businesses spend a great deal of time working to make their acquisition funnel more efficient and bring down their CAC because that makes them more profitable.
Many early-stage startups also spend a great deal of time trying to do this. Unfortunately, this is a completely backwards approach for an early-stage startup.
You’re Not a Business, You’re a Search Engine
The problem here arises from the fact that startups and more mature businesses have two completely different functions. A mature business has found a successful product and business model, and their function is to execute on that model as efficiently as possible. It makes sense for them to focus on making their customer acquisition funnel more efficient because they already know they have something their customers want and need.
A startup has a completely different function because as a startup, you simply don’t know if your product and model are correct. It could be that there are would-be customers who need what you have, but at this point that’s only an assumption — and probably an incorrect one. In all likelihood, you’re going to find out that your product isn’t a great fit and you need to pivot. And that’s ok, because as an early stage startup, the whole point of your organization is to figure out how you need to pivot.
Throw Efficiency to the Wind
Accordingly, it doesn’t matter how inefficient you are in accumulating your initial customers — it just matters that you get them. Acquiring real customers — even just a few, but ideally around 100 — is the only way to learn about your product and understand what, exactly, your customers want from it. Once you have that, you can worry about efficient acquisition. Not before.
So what does this mean for acquiring those first 100 customers? It actually provides an enormous advantage, because you have the liberty to acquire them one by one.
If acquiring customers means personally drafting unique emails or messages to friends of friends, that’s exactly what you should do. If it means picking up the phone or going to a farmer’s market with samples, that’s what you should do. If it means combing through discussion boards and creating an account specifically to message people through the website, that’s what you should do.
It doesn’t matter how or how inefficiently you get your first customers. Just go get them.
Learn the Tools
This is, of course, easier said than done. For a more in-depth look at acquiring your first 100 customers, check out our Rootstrap Growth courses. They’ll give you a step-by-step framework for validating your idea, acquiring your first customers, and eventually, scaling your startup into a mature business — and they’re the same techniques that Rootstrap has used to help over 250 businesses hone their concept and achieve more than $500 million in aggregate funding. And of course, if you like what you’re reading, don’t forget to click the 💚 below and the “follow” button at the top. We’ve got many more pieces coming that will teach you the basics of defining your idea, growing your startup, and building it into a sustainable business. Stay tuned.