Acquiring Customers

What's the most successful way to acquire customers?

This lesson explains how to rapidly acquire customers for a tech startup. If you read only one lesson in this handbook, make it this one.

Even if your tech startup has market pull (as described in Lesson 1), you still need a way for consumers to know you exist.

So, here's a quiz: Which of these channels is best for acquiring customers?

Google Search · Instagram · Facebook · Quora · Amazon · Google Display · App Store · Pinterest · Snapchat · YouTube · Bing · LinkedIn · Affiliates · Influencers · Direct mail · Physical ads · SEO · UGC · Network effects · Thought leadership content · Referrals · Sales · Aggregators (e.g. Reddit) · Product-led acquisition · Speaking and events · PR · TV · Print · Radio · Community · More covered here

The cheeky answer is… whichever happens to cost-effectively scale for your startup. The best overall, however, is what I call product-led acquisition (PLA). PLA means your users naturally invite other users while using your product. It's a clearer definition of network effects for tech startups, and it's what this lesson deconstructs.

For example, when you join Slack, you naturally invite your teammates and contractors so you can talk with them more easily. By doing so, you’re growing Slack’s user base for them—sparing them the need to spend money on ads.

Here’s another example: When you Venmo, Cash App, or PayPal someone who doesn’t yet have an account on the platform, there’s no way they won’t create an account to claim the $1,000 you’re sending them. Once again, you’re growing Venmo and Paypal for them by encouraging others to sign up.

Most major tech startups of the last decade grew primarily via PLA. Dropbox, Slack, Airbnb, Facebook, PayPal, Netflix, Uber, Snapchat, Zoom, and more relied on users inviting other users. They didn’t primarily rely on ads, content, nor sales.

Product-led acquisition is the one acquisition channel that (1) can scale to your entire market and (2) is stable and financially sustainable along the way.

This lesson will show you how to embed PLA into your startup.

First, here's why product-led acquisition scales so well:

  1. Virality: PLA has compounding effects. New users invite more users who invite more users. Ads, SEO, and sales do not produce virality like this and tend to stall.
  2. Fewer dependencies: With PLA, you’re not at the mercy of algorithmic and product updates by third-party ad platforms and search engines. For example, Facebook sometimes removes audiences from their ad targeting settings, killing your ability to run ads just to those people. And Google often updates their search ranking algorithms, annihilating blogs’ hard-earned traffic overnight.
  3. Low marginal cost: PLA scales without your costs increasing because it usually has no marginal cost. Compare this to ads, sponsorships, and influencers, which quickly become prohibitively expensive and trend to worse margins as you scale. Plus, advertising costs structurally rise every year as more startups advertise.

Paul Graham, the founder of Y Combinator, phrased it like this:

"Don't start a startup where you need to go through someone else to get users." —Paul Graham

While running Demand Curve (the largest educator in startup marketing) and Bell Curve (a growth agency), I identified four ways that startups can integrate product-led acquisition into their product:

Let's dive in.

PLA #1: Encourage users to invite other users

In software startups, there are two ways to encourage users to invite other users: (1) naturally or (2) via artificial incentive. The natural way is a form of PLA, and it looks like this:

Now let’s compare natural invitations to incentivized invitations—also known as referral programs. For example, you and the person you’re inviting both get $25 for signing up. Referral programs like these are much worse than natural invitations for three reasons:

  1. Most users don’t care about receiving a small cash reward—especially business users.
  2. Cash incentives attract users who are likely to quickly churn (stop using your product).
  3. Users are uncomfortable spamming their friends about your new product.

The poor performance of most referral programs teaches us that new users should come for the product’s core value—not for a cash reward—otherwise they’re likely to leave.

For natural invitations to work without incentives, the invitation has to take one of two forms: users are invited either to (1) receive something they’re owed or to (2) join a conversation that’s important to them:

  1. They’re owed something: When an existing user invites a new user in order to give them something they’re owed, the new user almost always accepts the invite. For example, if they’re receiving a cash payment (Venmo) or profit participation (AngelList), signing legal documents (DocuSign), or receiving an expensive NFT they purchased.
  2. They’re joining a conversation: When a user invites a new user in order to include them in a conversation both parties care about, the new user almost always accepts the invite. This is why Slack, Discord, Telegram, Zoom, Clubhouse, and other conversational apps grow so quickly.

Here’s the takeaway:

When designing your product, ask if your product is used to send valuable goods or facilitate important conversations. If so, get as many of your users as possible to use that feature as much as you can. That’ll trigger viral growth via product-led acquisition. Similarly, if you’re deciding between two equally good startup ideas, choose whichever is better used for these two purposes.

PLA #2: Turn your product into a billboard

This second category of PLA that I’ve identified is what I call billboarding. Billboarding is when a user’s use of your product is visible to others around them. For example:

As you can see, billboarding is when your use of a product becomes visible to people around you. This triggers free, one-to-many exposure and results in rapid product-led acquisition. Airpods, NFTs, Calendly, and GoFundMe rapidly grew this way.

To discover whether you can integrate billboarding into your own product, consider two questions:

  1. What are all the places that your product is publicly used? Outdoors? In email conversations? Via SMS? On social media?
  2. For each place your product appears, ask how you can make your product more unmistakably visible in that place. For example, if your app is used for sending email communication, embed a signature that mentions your app. Or if you’re an ad platform—whether it’s rooftop billboards or banner ads—place your company’s name on the ads. Now your ads become ads for your platform.

PLA #3: Encourage users to make shareable content

When users use your product to create shareable content, they’re creating user-generated content (UGC). This is a form of PLA for software startups: users are bringing new eyeballs to your app in order to admire their generated content.

UGC PLA takes two forms:

To leverage UGC in your product, ask yourself: Do users use my app to make content? If so, is it content that others would want to see? If so, create public user profiles and allow visitors to search through all the content. Focus on four areas of optimization:

  1. Entice users to create compelling content.
  2. Make it easy for those users to share the content.
  3. Make it easy for visitors to browse that shared content.
  4. Make it easy for visitors to create accounts and become creators of their own.

Trigger word of mouth

Word of mouth (WOM) isn't PLA but its similarly cheaply scalable and driven by your users, so I'll cover it: It’s when your product experience is so enjoyable that users naturally feel compelled to tell others about it.

WOM emerges from two forces:

1. A delightful product experience that users want to spread to others. User delight comes from being entertained (e.g. Disney+) and from reducing the friction in an otherwise painful process.

2. Next, tribal affinity is when users create a movement that non-users want to join. This happens in three ways:

Recap

Terminology note: People often use the term “product-led growth” (PLG) to refer to what I’m calling product-led acquisition. But PLG is a misnomer: it’s used to refer to SaaS companies using self-serve sales funnels (where a salesperson isn’t required). I believe that should be called product-led sales because it's for lead conversion instead of new lead acquisition. And so I made a new term: product-led acquisition.

Product-led acquisition is responsible for the growth of most of the biggest software companies: Dropbox, Slack, Airbnb, Facebook, PayPal, Netflix, Uber, Snapchat, Zoom, and more. It’s hard to be worth $10B+ without it.

Find a list of the biggest startups in the world and try to identify which of the four PLA types they’re using:

  1. User invitations: Compel users to invite other users—either to exchange valuable goods or to facilitate valuable conversations.
  2. Billboarding: The product’s use is repeatedly visible to non-users. Eventually, those who need a product like this will try the product.
  3. User-generated content: Users create content to share with others via your platform.
  4. Word of mouth: Users experience a delightful or tribal experience that they want to tell others about.

This lesson covered how to acquire customers, but how do we keep those customers once we have them? That's the topic of our next lesson: retention.

See the menu at the bottom of your screen for navigation links. To learn more acquisition channels beyond PLA, read this resource.

Who's Julian Shapiro?

I spend thousands of hours deconstructing how things work. I compile my insights into free handbooks like the one you're reading. Over a million people read them annually. Insights that don't make it in are shared on Twitter.

Outside of writing, I invest in startups through my seed fund and Carveout. Previously, I coded the world's most popular web animation engine, Velocity.js, and I founded Demand Curve, the largest educator in startup marketing. More here.

Next — Retaining Users

Learn the psychology behind keeping customers engaged.

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