First, it was Mac or PC. Then, it was the blue or gold dress. Now, it’s the upsell of an existing customer or going after a new sale. I know, the past 8 years have been a rollercoaster.
Start-ups have limited resources and capital. So, it is important to be intentional in how you scale your revenue. There are two main ways to get more revenue out of existing customers. You can upsell or cross-sell them. Or, you can go after new customers.
Upselling is when you encourage your customer to buy a higher priced alternative of the current product in the same product family. Or, you can augment the original purchase with additional features. JetBlue has made an additional $140 million in revenue through its upsell program called “Even More Space,” which is as American as it gets.
Cross-selling is when you recommend a product that complements a customer’s existing purchase from a different category. For example, if you run an e-commerce site, you can say to your customer, “I saw you just bought Tide Pods. Would you like some Tums with that?” Amazon has attributed up to 35% of its revenue to cross-sell, through its scarily accurate “customers who bought this item also bought” section.
Going after a new customer can be expensive. According to Invesp, acquiring a new customer is five times as expensive as retaining an existing customer. Another SaaS benchmarking survey stated that the average cost of acquiring a customer (CAC) to get a $1 annual contract value (ACV) from a new customer was $1.18. This means that it would take a company more than one year to cover the costs of that acquisition. While the CAC for an extra $1 in ACV from cross-sell and upsell efforts was only $0.28.
Yet, 44% of companies say they focus more resources on new customer acquisition. While 18% focus on retention, and the rest claim to have an equal focus.
So if it is cheaper to upsell a customer than go after a new one, there is a higher likelihood that you can close an upsell vs. a new customer, and it could lead to more revenue, why are 44% of companies more focused on acquiring new customers?
You can’t upsell customers if you don’t have any to begin with. And it is helpful to get logos on your website and in your pitch decks in order to exhibit scale and have a better chance of securing early venture funding.
Also, it is important for your customers to be referenceable in the first few years, regardless of what they’re paying you. It takes some time before you completely understand your customer and their journey, which you should do before you try to squeeze more money out of them.
McDonald’s employees wouldn’t say “would you like fries with that?” to a customer ordering a salad (those people exist), but they will ask someone with bloodshot eyes ordering chicken nuggets, a Big Mac and an apple pie.
Start at the beginning. When you sign up a new customer, ask them what success means to them. Then figure out ways to track that and show them in a year that you helped them hit those metrics. (Now that’s a takeaway)
What do your customers value most? Before taking over as the new CEO of American Express, Steve Squeri sat down with each executive at the company and asked them what they wanted from him, what they were afraid of, and what they were hoping for as he took on this new role. I imagine that most of them shared some helpful expectations and weren’t all just vying for a Centurion Card.
Actively check in throughout the year to continuously learn more about the customer and their complete journey. Don’t just throw stuff out there and see what sticks, like how Netflix has been green lighting “content”.
Tell a story. Have fun with it. Share an idea for how your customer can grow. Then explain how your upgrade can help them get there.
Upselling, cross-selling and acquiring new customers are all critical to scaling your business. Make sure you are intentional in how you are dividing your resources, tracking it effectively and only trying to upsell once you have a real relationship with your customer.
Regardless of what you choose, don’t lose customers.
An MVP is a Minimum Viable Product. To many, an MVP becomes viable once you can sell it.
You should treat your MVP as the beginning of a trial period. That means that at launch the product has enough substance so that you can learn and get helpful feedback during the "trial period".
I would recommend reading Lean Startup by Eric Ries. He says "MVP is the version of a new product that allows you to collect the maximum of validated learning about your end customers, with least effort!"
The most important first step in building an MVP, and interestingly the one that most commonly gets skipped, is talking to your potential customers. Find out what they want and what they are willing to compensate on. Like how I compensate for my height by being, according to my kind friends, "deceptively athletic".
According to CB Insights, one of the major reasons a startup fails is that there is no market need. So, start there.
Maybe you don't need to compromise on quality and are ready to go to market with a MAP (minimum awesome product). If you need inspiration, think about the guy who wrote the Map song for Dora the Explorer. That's a three-sigma success case of an MVP.
What are you building? A product or service that is faster, sleeker, more intuitive than what is out there? Or, are you creating something new? According to the founder of 500 Startups, if you are creating something unique in an industry with zero alternatives, your MVP can actually be your MAP.
Most importantly, make your product easy to use and make sure it solves a problem. Customers, especially potential ones that haven't bought your product yet, will try to pull you in many different directions. Stay focused on your goal, and don't give into every customer suggestion. You don't have to be as closed off as United Airlines' customer service, as it may help to use customer feedback to guide your product development.
It is easy to get distracted by adding new features and design updates. Just think about if those are helping make your product more convenient and the user less frustrated.
So how do you do it? Start by setting a timeline. Establish clear goals and milestones that you will hit. Be as specific as you can and use numbers, such as talking to 10 potential customers before celebrating National Pizza Day on February 9th.
Launching your MVP is the start of a long experiment, so don't give up too easily. If your MVP fails miserably, try targeting a different customer or industry, and focusing on different key features of your business. Be smart about those changes and monitor them as regularly as you monitor your fridge when you're kind of hungry but know there is nothing good in there.
In short, even though both are important, you should focus more on perfecting your understanding of the user and market need than building a beautiful, bug-free product. Oh, and don't forget to think about how you are going to make money from it.
Professionals show up every day.
If they are exhausted, or it’s raining and the new season of Stranger Things just came out on Netflix, professionals wake up and work on their craft.
Many aspiring writers and artists only write and paint when it is convenient. That’s the first step to transition from amateur to professional.
Treat your art like your job. On Sunday nights, after you’ve worked through your weekend choices, make your plan for the week with a few concrete goals. What three things do you want to get done this week to move your craft forward? This should be even easier than your job because it’s fun, and you don’t have to incorporate your co-workers’ thoughts.
I would recommend taking a few hours to read the book “War of Art”, by Steven Pressfield. Pressfield shares in the book that “there's a secret that real writers know that wannabe writers don't, and the secret is this: It's not the writing part that's hard. What's hard is sitting down to write.”
Set aside at least an hour each day to write or paint. The popularized phrase that says “it takes 10,000 hours to become an expert” isn’t completely true. The study Malcolm Gladwell cited said that it takes 10,000 hours to get to the top of a very competitive field in a specific topic. In order to get good at something, the research says that it only takes 20 hours.
That is only ~45 minutes a day for one month. You could spend that time signing up for Geico three times a day for a month. Or you can spend it writing or painting. Your call.
If you know your days get busy and unpredictable after 4pm, then wake up an hour earlier than you normally would. If you are normally bored when you get home from work, set aside some time before dinner.
Just like you tell your boss how important it is to go to a rooftop bar to “network” for deal flow, it is just as important to network for your art. If you are an aspiring comic, reach out to other comics and bookers at clubs. If you are an aspiring painter, walk into galleries and talk to the curators. For writers, send your favorite author fan mail and reach out to publishers.
John Maxwell said, “You cannot overestimate the unimportance of practically everything”. Setting clear goals for the week makes it more difficult to procrastinate.
After you spend a month working on your art, you can determine if writing articles you know The Onion should pick up is just a fun escape from the real world, or if you can and want to take it to the next level.
When I first started in Venture Capital, I was consistently told that the way you get good at investing is to look at thousands of deals. Which means you realistically have to spend years doing it. Or pull 36 all-nighters watching Shark Tank re-runs (don’t double check my math that I definitely did there).
How could I take a productive shortcut to get there quicker? Like when you hypothetically fake a limp at Disney World to get a fast pass to cut the lines.
So I took a step back. Seeing thousands of deals makes you better at your job because it allows you to see trends first hand and understand what core components make up a successful business. You learn what business models work and who the right management teams are to make it happen.
But every deal an investor sees doesn’t leave the same impact. There is obviously a large difference between writing an investment memo for a deal and just reviewing another “Uber for X”’s pitch deck. Aside from spending more time on a deal, speaking with experts in the space, and asking more questions, I believe the biggest difference is the writing part.
When you have to summarize your thoughts on paper, you are forced to review and condense your findings, and in turn, you will better remember them.
So that’s what I did. For every deal our firm has looked at over the past three years, I wrote down the top five diligence questions for each deal and a few key takeaways.
Getting into the habit of doing it is tough, especially when you speak with companies that are creating something eerily similar to what you’ve seen in a Black Mirror episode.
For me, it wasn’t just about checking boxes and getting to the 10,000 deal mark. It was about being intentional in my review process and holding myself accountable to getting better at company diligence each time a company came across my desk.
There are a lot of prominent people who will tell you that when it comes to success, there are no shortcuts. But, I’m a #millennial, and this appears to be a productive shortcut for a specific goal that will hopefully apply to at least a few of you.
Even when goals have a seemingly definite timeline for success, pause and think about how you can shorten that timeline and go through the process more efficiently.
Which unfortunately happens to 1 in 3 people in their lifetime in the U.S.
I was diagnosed with cancer earlier this year. I found out I had cancer on my birthright trip to Israel. Birthright is a free trip anyone can go on if you have one Jewish parent or have seen 70 episodes of Seinfeld.
I went to Israel to get closer to God… and got a little too close.
I had a terrible stomachache and naturally thought it was from too much hummus. So I took the recommended dose of 12 Tums. Tropical flavored Tums are delicious, but not an effective cancer treatment.
Turns out it wasn’t too much hummus, it was cancer. Classic mix-up.
When I was going through chemotherapy, surgeries and recovering, I got quite a wide range of comments and questions. Some thoughtful and some not so much.
So for those of you who unfortunately have friends and loved ones currently fighting cancer, I wanted to share some advice.
All that being said, I will write a follow-up post on how my life has changed post-cancer. Stay tuned!
You make money in Venture Capital by being right when everyone thinks you are wrong. An easy way to do that is to look for bad ideas that are actually good ideas.
Putting an extra mattress in your apartment and allowing strangers to pay you to sleep over for a night or two, now that sounds like a bad idea. And that bad idea is now valued at $31 billion (AirBnB).
When looking to invest in a company, it is difficult to make money investing in “-er” businesses. A better smartphone battery. A cheaper Bluetooth speaker. A faster email tool. Twitter. Those ideas are features that larger businesses (Samsung, JBL or Gmail) can turn on if you ever become big enough to take market share from them.
Is the company you are looking at one that Silicon Valley can’t invest in because of an institutional Series A KPI hurdle? Think about if that hurdle is relevant for this business model.
It is important for bad ideas to be run by the right team. How did the founders come up with an idea that seems irrational on its face? Is the company being built on a secret that only the founders know? Like when Instagram’s founders realized that everyone wants an opportunity to share pictures of their classy boozy brunch in socially acceptable way.
In AirBnB’s case, the three founders went through all of the public information available on the hotel industry, which is what I would call a wild Friday night. Understanding the hotel history in its entirety allowed their team to upend the industry using the Internet’s scale and trust in an unprecedented way.
After hearing an innovative bad idea that would make the operations team at Blockbuster look good, a great first step is to do your research on the competitive landscape. You’d be shocked what people have already come up with, tried and failed.
What makes their business model sustainable? What have they figured out about the industry or their customer that no one else has figured out? How do they plan to establish a competitive moat? You may agree with Elon Musk that “moats are lame” or you can take Warren Buffet's word for it, which essentially says they aren’t lame. Up to you!
If you are an entrepreneur who earned a secret you are leveraging to try out a bad business idea that no one has else gone after, shoot me a note.
Four thoughts that shape this blog:
“If you can't explain it simply, you don't understand it well enough”
You're busy. My posts and I are short.
You're bored. I'm funny.
And you’ll hopefully learn something new.
You could be learning basic poker theory right now. But instead you are reading a blog that countless friends and family have called “a pretty good idea”. Life is about getting started trying new things, and you see what sticks.
“Be humble or be humbled”
I am 25 and have a lot to learn in my industry and life. So, I decided to start a blog.
"The person that you will spend the most time with in your life is yourself, so try to make yourself as interesting as possible"
Reading my blog is a great first step! My grandmother told my mom who told me that nothing ever happens if you stay in your house. So if you're not interesting, go outside and spend time with someone who is.
So, here we go.
Do you truly understand your portfolio companies’ customer? Go find out.
Today, SaaS companies report having nine competitors on average, up from only two back in 2013. Netflix, the SaaS company that you, two of your cousins and your ex split $5 a month for to watch re-runs of The Office, has at least 10 formidable competitors.
The winning companies in their respective industries are the ones that best understand the core reason a customer is choosing their product. Netflix’s post-play feature and “skip intro” button have made binge-watching even easier, allowing you to keep those hands in a bag of chips while scrolling through Instagram.
Most companies have an attractive solution to a real problem. Take Lunchables. You’re hungry (problem), and you want to eat something that makes you question the FDA’s approval process (solution).
What you really want to know are the details of the customer's anxiety towards the Company’s new solution.
Does the Company have an install process like Verizon's? There has to be a better way to get set up on their system than to have an overweight, tech-challenged 50-year old man, who thinks that belts are just an overrated fashion trend come to your house.
I encourage you and your portfolio companies to sit down with three customers, and some customers that churned, and dig into what they think the main value proposition of the Company is and what else they hope the Company would offer them.
Here are a few questions you should bring up to sound smart.
What did the customer have to change or give up in order to choose the Company’s service? Is there anything about their current business practices that made it difficult for them to do so? What made you to choose this Company’s service? What is their main value driver to your business?
This exercise can help you analyze how effective the Company’s sales process is. It could help you better retain customers. It could lead to pricing strategy discussions, like when Starbucks increased the price of their (read in condescending tone) tall non-fat decaf mocha soy latte Frappuccino by 10%, and it actually led to a 25% increase in net income.
Encourage your portfolio companies to get out there and get to know their customer. It’s always good to check in with the people who are buying their product. It is bound to be more fruitful than your Thanksgiving check-ins with Aunt Carol who is always trying to set you up with her friend's son, who she swears is a "really nice guy once you get to know him".
I am a 25 year-old venture capitalist and amateur stand-up comedian living in NYC.