Nivi · December 26th, 2009
David Skok, serial entrepreneur turned VC at Matrix Partners:
“In the many thousands of articles advising entrepreneurs on what they have to focus on to build successful startups, much has been written about three key factors: team, product and market, with particular focus on the importance of product/market fit. Failure to get product/market fit right is very likely the number 1 cause of startup failure. However in all these articles, I have not seen any discussion about what I believe is the second biggest cause of startup failure: the cost of acquiring customers turns out to be higher than expected, and exceeds the ability to monetize those customers… [emphasis added]
“A quick look around all the B2C startups shows that, although viral growth is often hoped for, in reality it is extremely rare. When it does happen, the associated businesses are usually extremely attractive, provided they have a way to monetize their customers. (For more on the topic of Viral Growth, refer to my blog post on that topic here.)
“Far more common is a need to acquire customers through a series of steps like SEO, SEM, PR, Social Marketing, direct sales, channel sales, etc. that will cost the company significant amounts of money. What shocks and surprises many first time entrepreneurs is just how high the numbers are for CAC [Cost to Acquire Customers] using these kinds of techniques.”
Read the rest of David’s excellent post: Startup Killer: the Cost of Customer Acquisition. But don’t worry about it too much until you’ve built a product people want. It’s hard to know what the CAC is before you know what the product is. And check out the rest of David’s new blog — his post on Viral Cycle Time is great.
Topics Customer Development