How I Built My Business to $5M in Revenue in 3 Years

0:00[Music]

0:07[Music] hi everybody my name is drusen hockey and I started a company called design public it's a dropship ecommerce retailer and the story of how we started we started in San Francisco in this warehouse where there all these startups and started it in 2003 so a while ago across the hall from us was a was a podcasting companies guys were working on podcasting and you know our company was getting going and we were making a couple hundred dollars a day and it was like a thousand dollars like we're starting to roll and then these guys across the hall start sending us texts it's like we're going to get

0:48burritos no we're going you know we just went to the bathroom and it was like all right and I like what are these guys doing guys we're we're running a business over here like we're selling furniture and could you stop you know with these meaning in a meaningless texts and they rebranded they became Twitter they were oh do and it was like we we ultimately furnished they're at their first office so it's sort of like the relative values of the two companies design public and Twitter are reflected in that fact that we furnish their office and like the like the asses of Twitter or on design public so anyway I

1:29sold the company in 2012 and I moved on to micro private equity which is kind of like buying and selling small online properties much like Rob did with hid tail I work with a guy named Dominic and he's back there raising his his hand and we're buying SAS apps so if you have a SAS app particularly in the intellect marketing analytics we'd love to talk to you drew sanaka comms where the magic happens and that was my twitter handle at the bottom this is the big idea this is what I want to talk about today and when I think about product market fit I kind of think of it as binary like

2:09you've either either have it or you don't and before you have it all your effort and activity and marketing dollars should be spent on finding product market fit and once you have it though how do you grow and that's the question that I'm gonna answer here and sort of what I attribute our growth from you know a couple hundred thousand dollars to five million in revenue is has to do more with that and I argue that the the highest ROI thing you could spend your money on the highest ROI use of your time is number one and identifying your best customers and number two growing more of them so

2:51that's it's not growth hacking it's not more users for the sake of more users it's not more revenue without regard to profit it's really a two step process you've got to find your best customers and then you got to grow that that high lifetime value user base and why is that why is that the highest ROI thing you can do is because every dollar you spend on retaining one of your best customers does double duty so you increase the value for your current best customers and yet you also increase the value of future best customers that you pull into your into your company through your marketing funnel so every dollar spent

3:30on retention of your best customers it's super high ROI I'm going to walk you through both steps and how we approach them and show hands how many ecommerce retailers are here actually I was thought thought it would be zero so that there - I tried to abstract these lessons - sass because I figured that it was primarily ass ass ass ass audience but I think they still apply so first step identify your best customers any business has a range of customers and not all customers are created equal so it's just an example you may have you know in this case 20% really bad customers these are the customers who

4:12order once and then maybe return they take up a lot of customer service time or they sit on your your freemium plan or your lowest tier plan and again you know just don't really add a lot to your business and then you've got a big group of people sort of in the middle and at the top you have your your highest LTV customers and they're the ones who are on your premium pricing tier and they order from you all the time they don't take up a lot of customer service time and these are the these are the ones you want to focus on and grow grow your business around how

4:47we did it at our company how we segment I guess based on that that previous chart the next question is like well how do you figure out who are the best medium and and the worst customers there's software to do it but we use three simple metrics recency frequency and monetary value so how recently a customer purchased a total number of purchases from a customer and then the total dollars that customers spent and we just built a spreadsheet that ranked our customers from best to worst along those three metrics and using that spreadsheet we figured out okay like the top twenty twenty percent of our customers are driving our business they

5:26drive over 50 percent of our revenues so that's the one that we want to grow for SAS you can't really use our FM as much you would just calculate LTVs of of the various customer groups and I think you know KISSmetrics does this so the question is like once you have that once you've identified your best customer segments how do you create more of them and this this is the clip art that came up when I when I searched for creating more best customers it's that's what it looks like it looks like mannequins so there are three ways to grow your best customers the first is you retain more

6:07of them so you reduce the churn from your best customers the second is customer development and that is are there ways to take your worst customer and turn them into a good customer that's really hard and then the third is acquiring more of them so different market marketing campaigns bring in different kinds of customers can you focus in on the ones that bring in the highest value customer to your business here's an example of retention we noticed at our at our business that again ecommerce no recurring revenue but we noticed that some for our best customers they were ordering every 60 days and that would go

6:47on for almost a year and then they drop off they would buy furniture from another brand so we figured you know how are we going to extend that customer lifecycle and we set trip wires we set trip wires at 60 days and we figured if a customer goes beyond that 60 day window and they haven't ordered from us more likely than not there they won't though they'll disappear so let's set up a promotion ladder this is the image for promotion ladder we're at 70 days the customer gets a 10% off coupon at 90 days they get 15% off coupon in 110 days 20% off coupon so set it up we carved

7:29out 10% of our customer group for a control and we sent to this promo to the other 90% and it got us like a 400% return on marketing spend so that's for every dollar you give me I give you back your dollar plus four and that was over three to six months I think so super high ROI and just that's the kind of leverage you get when you can identify your best customer and extend their life cycle so in the SAS world it's like reducing churn and it's called trip wire marketing for SAS I think the biggest red flag there is is probably the customers last login time so if you if

8:11you monitor that over time or chart it against the likelihood of a customer canceling their subscription I think you find like a super high correlation obviously it's going to be different for different businesses but for most I would I would zero in on that lost last activity date like a hawk and I would have alerts going off bells and whistles that tell me like this cohort of customers is about to defect like they're going to cancel their subscription because they haven't logged into my app in you know X days and this is where I want to spend my marketing dollars I want to call these guys get on

8:45the phone or I want to set up and automate an email campaign to go hit them with an offer just ask why they why they haven't used our service so because I was limiting this to 10 minutes I was going to talk through examples of all three but just quickly on this slide development is one of the hardest things you can do because in the in the lingo of like of database marketers customers are born not made so it's very hard to create a good customer from a bad customer you're usually better off just trying to attract more good customers but the way you can approach development is by looking for

9:25bridges like what are the target the key feature sets or target products that a customer will use that cause them to bump up from say a freemium level of pricing to a paid and so once you've got your product market fit you could spend some time trying to figure out like what is that unique feature set that causes some of my freemium users to start paying for my product or causes some of my low tier guys to go to a higher pricing tier and once you identify those again you you you wrap your marketing around it you know you you automate your email campaign so that highlight those

10:02features the last last example of acquisition one of the best things you can be doing is logging the you're the marketing acquisition campaign for every customer you have so Google Analytics gives you aggregate data but it's not really that actionable on a customer by customer level so every time you get a customer and what we did was log the just log the Google Analytics cookie information in your database with that customer information and then you go through that process of bucketing your customers you find that these guys are the best and this other group is the worst and you're going to see a difference in marketing acquisition campaign like SEO

10:44and maybe content marketing pulled in all my best customers pay-per-click pulls in all my crappy customers so that tells you how to allocate resources inside your firm and you'll even find out that you can get that very very granular in our case we found certain ad groups drove really high LTV customers but other ad groups did not and if you only measure the first interaction with our business we'd want to spend same amount on both ad groups but once we layered this LTV insight on top of that they told us hey we can really spend up on some of these ad groups and we can take the money from

11:20the other ad group and we'll come out ahead so I guess what I'm really ad ten minutes but what I'm really advocating here is a mindset change this is the last slide before product market fit everybody I think has that mindset that you've got to find the right solution the right solution for a problem after you've got it I think it's more about finding the right customers for your solution focus tends to move from acquisition to churn from revenue to cash flow and that's why I think this this customer centric approach is really relevant to to solo founders and to bootstrappers because a venture-backed company usually just cares about growth

12:05and they care about users and they don't doesn't have to be profitable growth but for for us here where the growth is kind of being financed by our own time and by our own dollars I think it really would behoove us to think in terms of just overall lifetime value and profitable growth so that's all I've got thank you [Music] [Applause]