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First I'm going to tell you a story. Then give you an action point so if you decide to, you can take action. Don't worry, I’m not asking for any money, not even your email! Then there's an in depth article. At the end you can unsubscribe if you don't want another email like this. The fairy-tale (warning: conceals powerful truths) Once up a time there was a web design company whose engine of growth was Paid. They got a customer, built them a great site, and moved on to the next. Sometimes they’d get another job from the same customer. Sometimes after a long wait. Sometimes never. Every day they struggled to find new customers. Of course they used SEO. They used Adwords. They waited for word to spread. Desperate, at the end of each month, sometimes they even tried cold calling. Ugh. One day, inspired by the Adwords Right Side Wipe-out, they dreamed of of new service they could offer. A service to protect their prospects from Google slaps and changes. They started with the easy sell, to existing customers. They told them how often (many times a week) Google makes changes, and how they need to keep up with this. Or see their rankings slip, their costs spiral. Because of that, the web design company got people to pay a subscription. Each month! Automatically! Getting people paying for the long term (often by subscription) moves you from the Paid Engine of Growth to the Sticky Engine of Growth. Because of that change from Paid to Sticky, this web design company got a predictable cash flow. They invested this getting more sticky customers. Until finally they grew and grew until the founder could get back to what he always dreamed of doing. (Go on, what do you dream of?) Action Point As you’re a web designer Sticky is best because you have more control, more predictability and a smoother cash flow. No panic when it’s time to pay the wages! So if you don’t have a product or service that people will pay a subscription for, create one. The back story Eric Reis explains it in his book The Lean Startup. He defines three engines of growth: Paid, Sticky and Viral. If you have the time, read it. For busy people like you, here’s The One Page Version. Paid Engine of Growth This is the default. It’s not that you don’t get repeat business that separates Paid from Sticky. It’s that each transaction is a separate decision in the mind of your customer. And it’s not Viral because it’s not a condition of use that one client recruits another. The key metric for Paid, is that the cost to acquire a customer is less than the profit from them. In most businesses (wedding dresses are a hopeful exception) you can expect to make more than one sale to a customer. This stream of profit is the customer’s lifetime value. So in Paid, you’re looking for ways increase the lifetime value. And to decrease cost: of acquisition, of product. The Bad news #1? What you will find is that over time is that all the competing companies tend to drive up the cost of acquisition until they (and you) are just barely profitable. An example of acquisition costs going up is Adwords. 10 years ago you could get traffic for anything for a few cents. Now it’s dollars for uncompetitive keywords. Today and for a year or two Facebook, re-targeting and YouTube are the places to be. Yet all to soon their prices will increase as everyone gets in on the secret. Or they’ll lose their audience. You can always hope that you can find a new source of cheap advertising. Bad news #2. In the long term, stripping cost out tends to commoditize your business. So prices come down even as acquisition costs go up. Profit? Only the #1 super efficient operator makes any. How to uncommoditze? Make yourself a Unique Selling Proposition - how to do that comes later in this series. (unsubscripe if not interested) In the long term the pain of staying in the paid model is relentless cost cutting to be the cheapest commodity. It can take a few years, years when you make a good living. But eventually they’ll be just one or two super efficient companies making good money. Is that why you went into web design, to become a super efficient operator? Finally: a subtle point of Paid is NOT to set a marketing budget. You increase marketing as long as you make money and as long as you have capacity to deliver. Software is the classic: infinite download capacity. Do you have a service that you could turn into a product? Sticky Engine of Growth Psychological principle: sticky is better because people only have to decide once to do business with you. Your business model is around getting a customer, doing a great job, and getting more and more work from them. You’re almost certainly charging a recurring fee. You need to keep these hard won customers, otherwise you have to go out and get another. Perhaps using the dreaded cold-call. What’s more, when one leaves, it’s not like they chose Wendy’s instead of Burger King cause that what was at the next freeway exit. No. They sampled all you had to offer and ... decided to reject you. Ow. That hurts. So you need to track the churn rate -- how many people leave over time. To grow, you also need to track the acquisition rate. And growth is simply acquisition rate - rate of churn. I know that as a web designer your business is ‘lumpy’ - a few big clients. So getting statistically valid rates of acquisition takes too long. No-one said this business is easy. So you’ll have to use this lumpiness to your advantage. Ask every customer you get, and more so every one you lose: “I know I could do better, please tell me how” Viral Engine of Growth This is where a necessary condition of using the product is to involve another person. The original is the phone. One phone in the world is as useful as a Zen hand clap. Facebook is another ‘natural’ example. Hotmail was going nowhere. They turned themselves into a Viral success by adding a simple call to action to each email out: “Sent from a free Hotmail account. Click here for you free account”. Microsoft bought them for $400M. The one key metric is the Viral coefficient. This is simply the number of new users for each existing user. More than 1 means success, less than one means growth stalls. Imagine a thousand users and a Viral Coefficient of 0.1. So, you start with 1000. You add 100, you add 11, you add 1. Growth stops at 1112. Success lies in making it very, very easy for people to join. So often its free to the people joining and you make money from a second group who pay for access to them. Are you wondering why word of mouth isn’t included? Read the next email, or {unsubscribe} Yours, Matt |