The Machine: Making Customers
One of my founders at Velocity Accelerator joked this week that we need t-shirts for our cohort that say “Build the Machine.” I say it so often, in my workshops and coaching sessions, that it has become the mantra of this cohort.
I say it so often, because it’s the most important part of the business for founders to focus on, once they’ve proven they are solving a problem people care about.
Too often (almost always), founders get caught up in the running of a business (serving existing customers & building product), instead of the absolutely critical task of experimenting to learn how their Customer Machine needs to work → how they turn a person into a customer using a predictable, repeatable methodology. Another way that I describe this is: how the startup turn $1 into $4 every single time. (One startup in my current cohort is currently turning $1 into $8 every time. Even better!)
All of the messaging, marketing, sales strategies, touchpoints, onboarding, user experiences, pricing, etc are variables or levers in how a specific startup turns a person into a customer.
Most startup founders I meet can only tell the beginning and end of that story.
- Here’s how people find us.
- Some of them become customers.
Everything that happens in the middle — the inner workings of their machine or business model — are unknown. It’s magic.
I asked a founder recently if he could explain how he makes customers and he said “Oh, we’ll do everything.” Yep, magic.
Except it isn’t magic. There is magic in having insight into a problem in the world and a hunch about how to solve it. There’s serendipity in meeting the right people to help form your early team. There is a fair amount of luck in being the right team at the right time in history to build a great business around that early insight.
There is no magic in turning people into customers. There is no business until a founder can tell this story. A founder who just “does things” and hopes they result in revenue is not building a business. They are placing dumb bets at the Roulette Wheel.
So how does a founder tell their Customer Machine story? How do they even figure out what the parts of the Machine are?
At Fluent, one of our core strengths is taking the theory of how to build startups — Lean Startup, Agile, Design Thinking etc —and turning it into tactical, efficient methodology.
The Customer Machine is inspired by Dave McClure’s Pirate Metrics and the theories developed by Ash Maurya in Scaling Lean. It can be distilled down into three core concepts.
The Customer Machine includes three core stages: Acquisition, Activation, and Revenue.
- Acquisition: A person learns about your product/service.
- Activation: They experience your value proposition.
- Revenue: They convert to a customer.
Step 1: Define the parts of the customer journey
With the Acquisition, Activation, and Revenue customer journey, the first step is to describe and define these stages specifically for that startup. What is the interaction like between potential customer and the startup at each of these stages? The things the startup can DO to influence the customer’s experience at each of these stages are the Levers of the Machine. They can be experimented on and optimized.
For example, let’s imagine a subscription box startup that will deliver artisan coffee to your home. They may develop a hypothesis around how they create customers (Activation →Revenue*) that looks like this:
- Acquisition: The customer sees their booth at a local farmers market.
- Activation: The customer tries a sample of the coffee.
- Revenue: The customer signs up for a subscription.
Step 2: Measure each stage to get a baseline
By describing the steps the potential customer takes, the founders can track how often someone who sees their booth and tries their product becomes a customer. If one thousand people walk by their booth at the farmers market, 20 people try a sample, and they get one subscription sign up, they now have metrics to track and a story they can tell using real data, not just theory or magic.
Sometimes it is very difficult to measure the steps in the customer journey. It’s easy to procrastinate on defining the steps and putting the process in place to get accurate measurements. It feels cumbersome or a waste of time when you could be “out selling.”
But again, the founders’ mission at this stage is not to just get customers, any customers, using any method possible. It’s to build a repeatable, predictable process.
Step 3: Improve efficiency and conversion at each stage
Once a baseline is established, it’s much easier to run tiny, fast experiments to prove the steps in the customer journey work repeatably.
At the same time, once the Customer Machine, can be explained and measured, we can also begin to optimize it. What happens if the founders stand in the middle of the stream of farmers market visitors walking by and hand out samples from a tray? What happens if they have a big banner saying “Free coffee samples”?
After running several weeks of experiments, I’d expect their Customer Machine to look more like: “1000 people walked by, 350 tried a sample, and we signed up 40 new subscription customers. Here’s how we do that.”
It may be hard to believe, but I would rather a founder tell me they can prove and describe how they will repeatably get one new customer after 1000 people walk by their booth than for a founder to tell me they signed up 10 new customers using 10 different tactics and have no idea how they’ll get their eleventh.
The old maxim is so very true: What gets measured gets managed.
By defining, measuring, and improving the conversion of a person into a customer, founders can tell the story of how their startup has become a business, ready to scale — not through brute force but with a proven, repeatable process.
Why does this matter?
Startups aren’t businesses. They’re protean organisms designed to quickly identify a path to evolving into a business. So many founders lose sight of this in the quest to grow quickly and show traction at any cost. No wonder they constantly think they need to raise money — they’re running on fumes, throwing spaghetti at the wall and hoping it sticks, leaning into the maxim to “do things that don’t scale”.
With a Customer Machine in place and a story to tell about how their Machine turns $1 into $4 every time, founders can raise capital and build a business that scales beyond their ability to work 40 hours a day.
They move beyond hoping and wishing their business succeeds. They move beyond luck and magic.