2. Your First Avatar | $100M Lost Chapters Audiobook
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What is the significance of your first avatar in business?
Your first avatar. These aren't the droids you're looking for. Obi-Wan Kenobi, Star Wars, A New Hope. Lost chapter author note. If I could go back in time, I would include this chapter in the $100 million offers book. It's incredibly important for figuring out who your ideal customer is. And no, this isn't Yo Mama's find a niche chapter. This is real how you make tons of money type stuff. 2019, I can't remember the month. The room was dark and cold. Presenters filed on and off stage. We sat at the cool kids table for business owners who had softwares doing over $10 million in ARR, annual recurring revenue. We felt good about ourselves. Our software company, Allen, had recently crossed $1.7 million per month in its first six months.
How can understanding your ideal customer lead to more profit?
As we chatted between speakers, the event host got on stage. Our next speaker is someone everyone should pay close attention to. This man is responsible for over $50 billion in sales. The noise in the room died down. The host continued. He's a specialist in pricing and profit maximization. He worked for years at Vista, one of the most renowned software private equity funds in the world. Gulp, reality check, I'm still a minnow. The speaker broke down the process Vista used to grow companies. Their method was unlike anything I'd ever heard. Here's how it worked. When they consider acquiring a company, they analyze the company's current customers. They look for the customers who stay the longest and pay the most.
Then they score them according to this value. The highest scores go to the customers worth the most, the lowest to the ones worth the least. If they feel there's a vein of underserved valuable customers, they buy the company. Once they buy a company, they'd cut channels that brought the low-value customers. Then they'd double down on channels that brought the best ones. That's it. More of the high-profit customers, fewer low-profit customers. Rinse, repeat. When he broke down the math, it became even more obvious. It was Pareto's principle, 80-20 on steroids. 20% of the customers bring in 80% of the revenue. If you replace the 80% with those high spenders, you grow the business 5X. No small feat, especially in billion-dollar companies.
I wondered how I could apply this method across our portfolio. Since then, it's become a pillar of our value acceleration method, VAM, at acquisition.com. Finding the right customers. Earlier, I talked about picking the right market. It's an important strategic business decision. Choosing the perfect avatar is a subset of that larger decision. This is where we become more nuanced about exactly who we serve, and more importantly, who we do not. There are four steps to installing this process. I outline them below. Then, I share what we found after implementing this in GymWatch. Here are the steps. Step one, survey your customers. Set up a form with the questions below and send it out. Or for higher engagement, go over it with them live on an event or on a call.
Make sure they show they completed it to receive some benefit. Ask them every relevant detail you'd want to know. Here's an example of questions I would ask business services customers. A, demographics. Who are they? Age, gender, political affiliation, geographic location, digital location, single, divorced, partnered in business, or solopreneur? B, business stats before and current. Revenue, profit, number of employees, churn, pricing, products, customer lifetime value, number of customers, niche, how long in business. C, aspirations. What was their goal upon purchasing your services or products? What problem were they trying to solve? D, buying process. What's the single best reason they bought? Was there a trigger event that caused them to buy?
Did they consume any specific piece of content? Was there a specific testimonial they consumed? How many pieces did they consume? When did they first hear about you versus when they bought? Where did they first see us? Did someone refer them? Two, find your biggest spenders. Sort the replies by the customers you like the most, spend the most, and stay the longest.
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Chapters
5 chapters
1
What is the significance of your first avatar in business?
0:00–0:46
2
How can understanding your ideal customer lead to more profit?
0:46–7:39
3
What steps should you take to identify your best customers?
7:39–8:19
4
How do you survey customers to find valuable insights?
8:19–13:21
5
What common characteristics do high-value customers share?
13:21–13:26