Using Behavioral Science to Acquire, Retain, and Get More Value Out of Your Customers
Please feel free to watch the above video and follow along with the story below.
Finding Product-Market Fit is no joke…
Most founders believe that they’ve reached product-market fit (PMF) when they actually haven’t.
They typically aren’t even close.
This is the #1 biggest fallacy facing founders.
In this article (and video) you will go through the mindset of Mayur Gupta, VP of Growth at Spotify, and how he thinks about PMF.
Pitfalls of Founders and Product-Market Fit
The two pitfalls and concerns every startup founder should realize are:
- The realization that their vision hasn’t reached product-market fit.
Have you truly, and quantitatively, found (and kept) product-market fit?
In order to answer that, Mayur, recommends coming up with your own quantitative measures for PMF:
- Top level growth – new users, new customers, something like that to define top line growth.
- Retention rate – Are you keeping new users or new customers for as long as you expected, or need to, in order to grow a sustainable business. Most skyrocketing startups should seek to retain customers for life.
- Engagement – either product engagement or offline engagement depending on what type of business you have. MAU/DAU ratio is strong indicator of engagement at Spotify.
- NPS or “brand love” – How much organic realty are you earning? How many of your existing customers are helping to get new customers? (i.e. Referral)
Side note: I’d also recommend taking a minute to identify the early-stage lifecycle phases of identifying a problem-solution fit prior to product-market fit.
- Decisions you make on the things you don’t do
Have you been able to narrow your audience to specific personas and demographics?
Oftentimes when speaking with a millennial founder, Mayur will hear them attempting to address too broad a market too early in their startups lifecycle.
So, how do you say “No,” to people that could be a customer?
Because if you don’t say no, you will get into this dilemma where you start to orchestrate your product based on everybody’s needs. And broad strokes often lead to detriment for an early-stage startup.
You’re better off focusing on one primary channel, to get to PMF, then unleash other touch-points and channels from there.
Dmitry’s Story of Just Reach Out and Finding Product-Market Fit
He’s looking for validation that people will actually use, and pay for, his product…
So he starts finding customers and charging them before he’s actually built the software.
He’s not charging much, maybe $10 – $20, and he hasn’t yet figured out his pricing model, but people are buying.
Is this enough validation?
It’s certainly more than 0%, but absolutely not 100%.
So how does this early validation impact growth?
Impact product design?
Impact your pricing model?
After having built a little bit more of the product, Dmitry feels comfortable charging more for it.
And he continues this process of building more tech and charging more money to start to feel out early PMF.
Your First 100 Customers
Week one of starting any business, where you have a business model, you need to draw a line somewhere and say:
If I get 100 customers, and X customers come back within a two-month time frame (replace “two-month” depending on your business model), to repurchase, and Y of those customers will tell other customers, and Z of those customers will leave feedback and help provide us with a baseline for NPS…
If that happens, then I can say I’ve got an early sign of PMF.
It’s not just about getting the first one, or one hundred sales. That’s not PMF.
It’s not about getting simple feedback from people on the streets. That’s not PMF.
It’s not a single dimension that proves strong PMF. You need strong indicators from all of those 4 pillars in order to best define your fit.
Remember, a startup is not a marathon, in the sense that you cannot actually see where you are going. You can’t see the end of the race.
You have to be running at 100 miles an hour, but you have to be able to pause and pivot.
That’s the challenge as a founder, because you get so attached to your idea, that it gets very tough to realize that “this isn’t the right path.” Not only have you invested your mind, heart, and soul into your idea, but you’ve likely also invested significant resources.
The ones scrutinizing their ideas are the ones more likely to succeed.
There is no predefined straight line. You have to keep zigzagging until you prove PMF at scale.
Dmitry’s Big Pivot
After getting initial traction and selling his PR software at a higher and higher price point, through the release of new features and ever increasing PMF, Dmitry Dragilev was hitting a major snag:
PR has a lot of moving parts…
You have the journalists that are going to publish.
You have the pitch that needs to go out from the startup.
And just having software didn’t do enough justice to provide the value needed to the customer.
So Dmitry started a services side to his business. He started helping customers with the pitch, writing the email, tracking it, and teaching his customers/clients what to do when people don’t respond.
But… There is a problem:
Dmitry doesn’t want to be a services business.
This doesn’t align with the long-term plan for the business… Or does it?
Over the course of four years, and many pivots, Dmitry realized that services improve his product retention, and he’s now built that into his business model.
Reaching Product-Market Fit
Reaching PMF does not mean you are guaranteed to stay in PMF. The world around us is changing so quickly that once you reach PMF, you have to work even harder to stay there.
Think about the mobile experience movement of the last 18 months. Less than 12 months ago, many people jumped on creating the best mobile experience. It was the next best thing, important to PMF and growth of many businesses.
Today, the mobile experience is expected. It’s normal; it’s status quo.
Retention and Customer Delight
How do we define the “aha” moment for a customer?
Is retention simply about email campaigns, reminders, nudges?
Or is there something more that can be done inside the product to retain customers?
You can buy a date, but you can’t buy love…
Retention is the hardest part of the growth funnel to solve for. Even knowing what the aha moment is, is very tough to define for most startups.
Retention happens at the intersection of:
- A great product experience
- Great messaging
- Personalized and relevant storytelling
- Great content
You must reach out to that user when they are off platform, at the right moments, giving them enough reason to come back to the platform.
When they aren’t thinking about you, you need to nudge them back into the platform, to help build mental – intrinsic – triggers within that user, so that they will remind themselves to keep coming back to the product.
You have to help them build a habit, as frequent Growth Marketing Conference speaker Nir Eyal would say.
And they will only build those triggers if they continue to get value from the product. This is the “Must have experience” that the product has to deliver every time the user uses it.
What kind of message? What kind of content? This is why you have to test. Here’s a whole article on why science and the art of testing and failing is so important.
Remember, your CRM and the act of sending emails, sending messages… This isn’t retention on its own.
There is a lot that needs to go underneath this, foundationally, to ensure you are doing it right.
You need to understand the needs of the individual user and segments of users. Your messaging is based on the need.
Retention is a Symptom of Acquisition
Retention, especially, is a mix of art and science. It is a symptom of who you acquire. You can’t blindly acquire bad users.
The worst thing that can happen is that you acquire users that should not be part of your platform, you bleed money acquiring them, and you bleed money trying to retain them.
Everything begins from understanding your audience. And that is a larger battle than most people give credit to.
Dmitry Destroys his Retention
For Dmitry, it was clear the aha moment was when his customer would get published, or featured, in the press.
A couple years back, he was able to get a big promotional offer out to a large audience, using a tool called AppSumo.
This was great; it brought in a flood of new customers… But they were not the right customers.
All of these customers were looking for a great deal. They didn’t really experience the core features or find the aha moment in his product. And ultimately, they left.
What’s the lesson?
Not all customers are equal. It matters the channel you’re using. In this case, Dmitry made some revenue, but the promotion left him more distracted than enriched, veering him off-course from the goal of acquiring quality, lifelong, loyal customers.
Career Example from Mayur
A while back, Mayur was working with a Fortune 100 company on selling an incontinence product to the 55+ crowd.
After launching the product, they realized the growth they needed wasn’t there.
They kept improving the product.
They tried multiple marketing campaigns and nothing was working.
That is when they decided to invest into behavioral science.
Through research, they found out that it wasn’t about a lack of awareness, lack of trust, lack of trial. It was completely associated with the stigma of using the product itself.
The consumer doesn’t want to be seen buying the product. It’s embarrassing.
Those needs won’t come out of a survey response. They won’t come from measuring app usage.
Investing in behavioral science should inform your product and growth roadmap and development.
You must apply the causal understanding of the user to the product, messaging, content.
Knowing The Right Customers: CAM not TAM
Do you know how your users are actually using your product, especially in context of everything else they are doing in their day to day?
What tabs do they have open in their browser?
What products do they use in conjunction with your product?
Over time, you are likely to forget “who is this for?” and why you’re even building what you’re building.
When thinking about TAM – total addressable market, and a required data point for every startup founder to present to an investor – it’s a very misleading metric, because it only addresses how many people have the right to be your customer.
But how many users you have the right to win right now, has many factors to it. How do we transform a TAM into a CAM – current addressable market.
Who do you have the right to win? This helps us uncover the why behind the user.
Why are they using our product? Why are they going away?
Oftentimes, hunger is getting in the way of understanding your customer better. Stop that!
Investing Short-Term VS Long-Term and the Ability to Say No
The most successful founders are the ones that can say “no” the best.
When should you invest in building the brand vs invest in pure growth – pure performance – to acquire more users, and retain them.
This is a problem in every organization.
In the technology age, marketing is now being held accountable for outcomes, not output.
How does a startup get the first 500 or first 1,000 customers? And then, when running low on money, how are you supposed to scale that?
Often times the way to get the first 500 doesn’t leave you with long-term growth opportunities.
You must acknowledge what you are spending your money on: growth or brand, and invest in both.
Simultaneously, the two impact each other. Investing in growth will help strengthen the brand, and investing in brand will strengthen growth, even if they are done in different ways.
Why It Isn’t Easy
Finding product-market fit, scaling a company, investing in getting more customers, and getting them to stick around… It’s not easy.
You will naturally see all of the startup successes online, in your newsfeed, on TV, or on a billboard.
Whereas all of the failures get swept under the rug.
Are you really “data-driven” or are you just saying it?
9/10 startups aren’t looking at the behavioral science behind their users.
Understanding your first 100 customers will help you get your next 1,000.
Laser-focus your efforts based on understanding your customer, segmenting for their individual needs and problems, and cognizantly investing across targeted performance and brand. Good luck!