The evolution of customer acquisition (part 1)

I like to meet entrepreneurs who understand, even if loaded with unproven assumptions in their business plan, customer acquisition costs.

In a business environment with

1.  no/low distribution costs

2.  scaleable variable costs due to offshoring, virtualization, cloud computing and

3. mushrooming possibilities for connecting with potential customers (telesales, e-mail, SEO, lead generation, social, etc.)

isn’t the success of business models driven by costs of content or product creation, costs of customer acquisition, and the cost of any services that often need to be packaged with the content or product?

I see a lot of business plans that focus on investment dollars needed to create content/product/technology, that are hopeful that services don’t need to be wrapped around them and thus have high gross margins, and ignore the economics of how customers are acquired.

A lot of businesses that eventually get funded get stuck because even though the product works, the cost of selling and marketing it is an order of magnitude greater than originally anticipated.

Raising this capital dilutes Founders and raises the bar the investment must clear to be “successful” from a venture perspective.

We are in an era where super capital efficient businesses can and will be created because they are built from the beginning to test and ultimately arrive at the highest ratio of customer profit to customer acquisition cost.  I like entrepreneurs who are passionate about the company they are building but cognizant that the value created is dependent on this relationship.

More on this subject in future posts…