Chapter 1: 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.
Chapter 2: 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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Chapter 3: What steps should you take to identify your best customers?
We spelled out our requirements in our ads and pages. We talked only about the specific problems and aspirations of our best customers, rather than all customers. Findings from the above on how they bought.
After looking at the data, we found out that 78% of our top customers had consumed at least two pieces of long-form content before purchasing from us.
This means that if we got on the phone with someone who had not done that, our chances of selling them were lower. Step 4B, reverse engineer the buying process. Actions. My team then recreated this ideal buying experience.
From this point onwards, we injected two long-form high-value content pieces to each lead as a part of their buyer journey.
And we increased our total output of content.
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Chapter 4: How do you survey customers to find valuable insights?
On top of that, we created a list of our all-time greatest hits of content to arm the sales team. They then hand-selected two to three pieces they thought could help the prospect. By doing that, they forced them to go through the same buying process that caused our best customers to buy. Note, they were not disguised sales pitches. They were genuinely value-in-advance content.
Like this, hopefully. A comparison. A while back, I considered buying an equity stake in a business services company that served fitness business owners.
I spent the morning with the business owner learning about his business metrics.
From speaking with him, I discovered that despite the owner serving the same vertical as me and making the same number of total sales per month, he was making 70 times less profit. Yes, 70 times less. Spoiler, it wasn't because we were brilliant. It's because figuring out the most valuable customers to sell works. The difference. They accepted anyone with a pulse and a credit card.
As a result, they dealt with high customer churn, high cost of acquisition, low retention rates, and low satisfaction scores. And it had to be that way. Compared to ours, their advice was generic. On the other hand, we selectively pursued and catered to the highest value customers. We ignored all others.
This gave us higher retention, higher gross margins, premium pricing, and lots of repeat business. Same market, different customer segmentation, monstrously different results. This stuff matters. Quality over quantity. Many competitors try to recreate our buying journey. However, they don't fully commit. They panic. They cut out steps to get more volume. This is often a mistake.
In my experience, every time we remove qualification steps, our lead volume increased, but we made less money.
Merging marketing and sales into one acquisition department solved this problem for good. Marketing stopped complaining that the sales team wasn't closing. The sales team stopped complaining that they wanted more leads. Everyone came together to focus on what mattered, closing lots of valuable deals.
we now use the optimal amount of steps to generate the highest return on advertising over the long haul. Example, I would rather pay $5,000 to acquire $45,000 than pay $1,000 to acquire $5,000, even though the first cost five times as much. Knowing your ideal buyer journey forces patience. You see the business holistically, rather than as a widget to be sold to as many people as possible.
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Chapter 5: What common characteristics do high-value customers share?
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