Tuesday, October 16, 2012

Infusionsoft co-founder Clate Mask on growing with the wrong customers

Great mistake story by Infusionsoft founder Clate Mask from the FailCon blog. FailCon '12 will be held next Monday, October 22, in San Francisco. More info here.

In 2009, we decided to remove the setup fee in our subscription service. We were on a mission to reach 100,000 small business customers worldwide and I wanted to get there faster. This decision nearly killed Infusionsoft.

Ambitious entrepreneurs will always push hard to acquire more customers, but too often, we push forward in our business growth initiatives without realizing the cost of acquiring the wrong customers. These are the ones who complain often, demand extra resources and erode employee morale. They might add to the top line, but they certainly don’t add to the bottom line—or the balance sheet. Know who your target market is so you weed out these bad customers and protect your bottom line.

We learned this lesson the hard way. For over a year, we watched our cancelations skyrocket and our lifetime customer value plummet. I knew we had to figure out a solution and fast. I couldn’t stand by and watch this decision ultimately lead to the death of Infusionsoft.

What we did was get totally clear on who our target customer is. This is the most important thing you can do to avoid hemorrhaging cash on costly customers. This clear understanding informs every function of the business. Entrepreneurs who don’t invest enough time in this will pay a tremendous price when their growth ambition outstrips their target customer clarity.

In 2011, we reintroduced an implementation service to enable our customers to succeed. This service is well worth the investment to new customers, and we realized that charging for valuable services actually discourages the wrong customers from purchasing. Requiring customers to purchase implementation services leads to customers who are more likely to show up for training calls. They are more likely to invest in their own success.

I have learned a similar lesson - business customers don't value free.

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