Tag: optimization

How do businesses like yours get customers?

It’s not a complex question, but it’s one that most business owners couldn’t confidently answer.

I’ve asked other agency owners an even easier question: how do you get clients?  A significant number don’t even know this.  They say, “Huh… I don’t know.  People contact us.”

I have an operating theory that acquisition channels follow the 80/20 rule. 80/20, Pareto’s Law, or the Law of Imbalance states that most sets are not evenly distributed, but concentrated.  For channels, that would mean that customers are generated through just a couple of mechanisms in each market.

Last month, I decided to gather some data on this theory while improving my knowledge about businesses like mine.  As part of this effort, I hired a virtual assistant to scrape data off a publicly available services directory.  

The pie chart below, shows the initial 50 results:

75% of all customers reported finding the service company in one of three channels: referrals, directories, or Google search.  6% were in RFP’s and then little slices of everything else. (80/20 imbalance expressed as 75/25)

A few caveats with this data:

• It’s distorted because it’s scraping from a service directory.  Because of this, directories are likely overstated by a significant margin.  Referrals are probably much higher and directories at least half of what’s counted.
• It’s just a small, initial, sample – 50 purchases (the aim is for 500.)

If your business was a web development agency, and this held true for the larger market, the best return on your effort would be to focus on Google search, service directories, or referrals.

And that’s why this question of, “how do businesses like yours get customers,” matters.  There are thousands of marketing strategies that you could employ, but if they don’t align with customer behavior, they won’t work.

See also “Narrow Your Options”

Featured image is of Cinderella, barefoot, by the kitchen fire painted by Valentine Cameron Prinsep (1880) used under public domain.

Nassim Nicholas Taleb’s book, Antifragile, proposed a new idea- that there are certain things that improve from disorder. To give a short example of how this concept works: if you dropped a vase on the floor and it shattered, it would be fragile. If you dropped a vase on the floor and it didn’t shatter, it would be robust. If you dropped a vase on the floor and the impact caused the vase’s walls to become more durable, we would consider it to be antifragile. The disorder made the vase better.

In the book, Taleb lays out an antifragile investment strategy that he dubs, “the barbell strategy.” You put 90-95% of your investment in safe vehicles in predictable environments. The other 5-10% you invest in chaotic environments that contain the possibility of dramatic positive swings. In this way, you avoid ruin, but still gain from the occasional upward spike of fortune.

I’ve often wondered how you might employ this strategy in a business. This past year, I benefited from a front row seat on an application.

A bulletin board in a coffee shop I frequent is covered in business cards and flyers. It’s a wonderful organic mess, a kaleidoscope of unique rectangular designs. I doubt that it’s created much business for any of the people who posted their card.

There are hundreds of channels your business could get customers through- including a bulletin board in a coffee shop near you. However, most of them won’t do a thing for you.

Instead, there are likely less than five effective channels. And of those five only one or two will be the primary means your industry gets customers.