10 Myths About Demand Generation
Sunday, Dec 20 (2020) | 5 min read
Today, we’ll break down the demand generation process by walking the customer factory backward and busting 10 myths along the way.
Myth 1: Giving away your product for free generates demand
While giving away your product may attract lots of free users, you need to be focused on attracting paying customers.
Traction, not traffic, is the goal.
The argument often made is that free users will provide the requisite learning to help you later attract paying customers. But free users don’t behave the same way as paying customers.
When considering a freemium model, you’ll be better off first focusing on the premium side of your business model first, then backtracking into free as a marketing tactic.
Using the factory metaphor, users represent unfinished customers (or inventory). Unused inventory is a form of waste.
Key takeaway: Focus on increasing the number of customers, while reducing the number of users.
Myth 2: More customers is always better
Would you rather have 1,000 customers or 100,000? What if the first group had a lifetime value of $1,000 while the second group had a lifetime value of $10?
Both represent the same revenue, but your net revenue (profits) will most likely be higher with the first group. This is because your operating expenses of serving 1,000 customers will most likely be lower than that of serving 100,000 customers.
Additionally, churn (or attrition) is a killer as your number of customers increases.
A 2% monthly churn with 1,000 active customers = Losing 240 customers/yr
A 2% monthly churn with 100,000 active customers = Losing 24,000 customers/yr
Key takeaway: It is generally better to have fewer high-value customers than lots of low-value customers.
Myth 3: Task a VP of sales with demand generation
A VP of Sales is an accelerant.
They can take a sales process that already works and make it better. But they can’t create a sales process out of nothing.
That’s the job of the founding team.
The founding team needs to generate early demand for its product before bringing in a VP of Sales.
Key takeaway: Founders need to own early demand generation.
Myth 4: Customers set pricing
Can you imagine Steve Jobs asking customers what they’d be willing to pay for an iPad?
It’s not the customer’s job to set pricing. That’s your job.
If you think about this logically, there is no rational reason for a customer to ever tell you the optimal pricing for your product.
Either they know the value of your product and will try to lowball pricing in order to get a good deal. Or they don’t know the value of your product and will simply guess using a lowball estimate.
You lose out in both cases.
Key takeaway: Don’t leave pricing up to your customers.
Myth 5: Rush to build a Minimum Viable Product (MVP)
MVP: The smallest solution that delivers value to customers.
While the idea of rushing to build an MVP and iterating from there seems sound in theory, in practice we find that when entrepreneurs adopt this approach, they simply get stuck into a build trap.
A rushed MVP is often a best-guess at a possible solution to a customer problem. If that misses the target, which is easy to do when you’re guessing, customers don’t turn into early adopters or testers. They leave.
Without feedback from customers, you're is left guessing some more on how to improve your product. That’s when the build trap ensues.
A pivot without learning is a disguised "see what's sticks" strategy.
Remember, guessing is a recipe for wasting needless, time, money, and effort on the wrong constraints.
Key takeaway: Don’t start with an MVP.
Myth 6: Customers won’t wait for us to build a product
Unless you're building cars or rocket ships, most MVPs can typically be built in under 2 months. This sometimes requires a little out-of-the-box thinking but is achievable.
Customers will easily wait for 2 months for a compelling product.
If you’re selling a more complex product, say to enterprise customers, their procurement process will probably be longer than that.
Note: Even if you’re building cars and rocket ships, customers will wait. The first Tesla early adopters waited over 2 years for their Roadsters. The first SpaceX early adopters are still waiting for their trip to space. The bigger question here is can you afford to wait?
Key takeaway: Aim to deliver an MVP within 2 months of selling it to a customer.
Myth 7: We can’t sell an unfinished product
Think back to any new product launch you’ve witnessed or been a part of… PS5, iPhone 12, Tesla Model 3, a crowdfunding campaign?
In these launches, customers don’t get to kick the tires on a working product. They see a demo and make a decision to buy.
Customers buy demos, not working products.
Old mindset: Build - Demo - Sell
New mindset: Demo - Sell - Build
Key takeaway: If you can’t sell the demo, why build it.
Myth 8: Customers will want to see a working product
Have you tested this? If not, I challenge you to give it a try.
More often than not, all you need for a demo is just a verbal description of how your product works, or a set of screenshots, or a slide deck — a far cry from a working prototype.
The art of the demo is showing the smallest thing possible that convinces a customer to buy.
We’ve sold six-figure deals this way.
Key takeaway: Customers don’t buy working demos, they buy a story of how you can help them achieve a “better” desired outcome
Myth 9: Crafting a compelling story pitch comes from better solutions
While your solution is a key part of the story pitch, it needs to be framed to fit your customer’s worldview, not yours.
When you pitch your solution, you might position it as faster, cheaper, better. But “better” with respect to what? This kind of positioning is supply-side selling.
You need to instead focus on demand-side selling.
In other words, customers don’t care about your solution, but about achieving better desired-outcomes.
Don’t pitch your solution in terms of its benefits but show your customer how it helps them make progress towards their desired outcomes by removing problems/obstacles in their way.
Key takeaway: Compelling pitches come from nailing your customer’s problem.
Myth 10: Customers fully understand their problems
Most customers only see the symptoms of their problems and don’t fully understand the root causes of their problems.
“If I had asked people what they wanted, they would have said faster horses.”
- Misattributed Henry Ford quote
This is why you simply can’t ask customers about their problems.
But with the right approach, it is possible to study customers and deeply understand their problems even better than they do.
This is the key step to understanding what “better” means to customers, designing that “better” solution, and positioning it as the only viable alternative for your customers — something we call a mafia offer.
Mafia Offer: An offer your customers cannot refuse.
Key takeaway: Understanding your customer’s problems better than do grants you super-powers.
Creating a mafia offer, not an MVP, is how you
- generate demand for your product before building or even knowing what to build,
- identify your ideal early adopters, and
- define the right MVP to build,
The picture below is the high-level blueprint for doing this:
Tomorrow, I’ll preview the Demand Generation Playbook and it’s also when we’ll be opening registration for the full course starting in January.
See you then.