Buyer Behavior Drives Your Customer Acquisition Funnel

Because of the importance of sales and revenue to business, the subject of customer acquisition is one of the most-studied topics in business. Whether one calls is marketing, growth hacking, or even just salesmanship, it is one of the most important subjects to any business owners. Although I am certainly not the most knowledgable expert in this area, a lifetime of working in early stage, high-growth tech companies has provided me with some practical experience that others might find useful.

The science of customer acquisition starts with understanding buyer behavior. Buyers do not make instant buying decisions. They go through a series of steps that lead them to the conclusion that they must purchase something, and then they purchase. In general, these steps can take many forms, but abbreviated version is as follows:

  1. Recognition of Problem
  2. Decision to Resolve Problem
  3. Search for Solutions
  4. Purchase

This is an extremely oversimplified list since Step 3: The Search for Solutions, can take weeks, months, or even years, depending on the solution being purchased. And it is in Step 3 where we will focus most of our time in this paper. However, for now let’s walk through this high-level list to understand what takes place at each step.

In Step 1: Recognition of Problem, the buyer becomes aware that he has a problem. In many cases the problem is patently obvious, such as when a printer cartridge runs dry. In others, a problem may exist for years without recognition. The pervasive consumer marketing of drug companies that simply describe symptoms are designed to help potential buyers recognize health problems. By helping buyers recognize their problems and then encouraging them to talk to their doctors (who can provide a solution), drug companies increase the demand for their product buy putting people into the top of their sales funnel.

In Step 2: Decision to Resolve Problem, the buyer transitions from awareness of the problem to an action state in which he decides to solve it. The time between recognition of a problem to deciding to resolve the problem can vary considerably depending on the type of problem or product.

In Step 3: Search for Solutions, the buyer undertakes a research effort aimed at solving his problem. In most situations, the Search for Solutions is the most extensive of all the steps, and usually consists of many sub-steps. We will cover this step more fully later, but for now, just understand that the primary activity of the buyer is seeking information.

It is also important to note at this time that not all of the potential buyers that started with Step 1 will continue through the entire process to the final purchase step. If a buyer cannot get the information needed in Step 3 that suggests a solution, for example, they might give up and drop out of the funnel. It is our goal, as customer acquirers, to prevent this from happening.

In Step 4: Purchase, the buyer moves from a search action to a purchase action. This is the step where the buyer actually gets the cash, or takes out the credit card, or clicks “Purchase” on the web site. Now clearly this is a great place to be if you are selling products, but even at this late step, things can go wrong and the sale can be lost. If, at the time of purchase, the price doesn’t match what the buyer was expecting, the buyer might re-evaluate their decisions and decide against his current course of action. An accidental endorsement of another product by the salesperson might sow return an uncertain buyer to the Search for Solutions step. A credit card might be declined. Or, as I have personally seen happen, international buyers unfamiliar with US prices might balk when having to convert to their local currencies.

Now as I mentioned, this is a simplified funnel, and in future posts I will expand on funnel considerably.

Entrepreneurship is a Journey

Entrepreneurship is making the world a better place. The essential ingredient in building companies is solving problems for other people, so entrepreneurs help people. However, entrepreneurship is not an instant in time. Too many discussions of entrepreneurship treat it as a “thing”, when it is actually more of a process, or a journey. In order to build successful companies, entrepreneurs must persistently learn how to solve problems. The problems are simple ones at first, but as those get solved, the problems get more complex and harder to solve, until finally, the entrepreneur has a business with a defensible moat. The more difficult the problem, the harder it is to replicate the solution.

Modern discussions of entrepreneurship seem to focus on and prioritize “revolutionary” startups that disrupt the status quo in some way. Everybody loves a revolutionary, and web sites need to sell ad impressions, so if you were to just read the entrepreneurial blogs, one might come to the conclusion that the core of entrepreneurship is about finding the right, big idea that will annihilate some incumbent industry. These are the types of startups that venture capitalists need to survive, and since they tend to be thought leaders in entrepreneurship, it’s easy to come to this conclusion.

However, most business are not built this way. Most business start out by solving a simple but compelling problem, and then growing the solution to solve adjacent problems. Building a business is a journey, and in the following pages, I will share with you my own journey, and the thoughts I have collected over a lifetime in the early stage tech industry.