Google’s acquisition of YouTube seems to have captured the imagination of a lot of entrepreneurs that we meet at various events, in particular everyone wants to start a consumer Internet or media oriented businesses based on “viral marketing.”
Here are a couple of key questions to answer for your pre-viral marketing plan, or what you are going to do before the customer acquisition cost goes to zero (note: this doesn’t always happen–alas it’s more the exception than the rule–which can lead to a situation where you are “buying Google Adwords to sell Google AdSense“).
- What is the cost ($, your time, calendar time) to acquire a customer?
- Revenue from a new customer in first 30 days, 90 days, 180 days (how long to cover your acquisition cost and increase in marginal operating cost?)
- Expected lifetime (and therefore lifetime value of a customer)
I would answer this set of questions before I spent any money incorporating or buying any more domains. Your largest risks are usually market risks, not development risks. Also, for item 2, the revenue driver in a media business is the ability to deliver a well characterized audience to your advertisers. If your audience is composed of “folks at random” your advertising rates are much less than for an audience of CEO’s or private aircraft owners.
It happens all the time. I’m meeting with an entrepreneur, who is telling me about a really innovative product idea for a consumer website. And I’m liking it. We’re going back and forth on product ideas. And before I know it, we’re approaching the end of our meeting. I then ask them, “So, how are you going to acquire customers.” And that’s when it happens. That’s when I realize that they’ve spent all their time focusing on the product/site, and aren’t nearly as innovative when it comes to their customer acquisition plans. They view marketing as something they can “bolt on” afterwards.
The most disappointing answer is when they say “Oh, we’ll just make it viral.” As if virality is something you can choose to add in after the product is baked – like a spell checker. […]
That’s why First Round Capital’s website has always said: “Too many companies treat marketing and sales as a tactical afterthought. We believe marketing is strategic and seek companies that are marketing focused – with marketing requirements driving product development.”