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CHAPTER NINETEEN

The Funnel

Trust isn’t static

Visualize a funnel, one with a bunch of leaks and holes in it.

At the top of the funnel, you pour attention.

At the bottom of the funnel, committed loyal customers come out.

Between the top and the bottom, most people leak out. They walk away, trust diminished, or leave due to a mismatch between what you offer and what they believe, a disconnect between what you say and what they hear. Or maybe it’s just not a good fit, or they’re distracted, or life got in the way.

As people work their way through the funnel—from stranger to friend, friend to customer, customer to loyal customer—the status of their trust changes.

Perhaps they become more trusting, the result of cognitive dissonance and experience. Or, more likely, they become more distracted, more fearful, more eager to run away, because saying yes is more stressful than simply walking away.

You can fix your funnel

You can make sure that the right people are attracted to it.

You can make sure that the promise that brought them in aligns with where you hope they will go.

You can remove steps so that fewer decisions are required.

You can support those you’re engaging with, reinforcing their dreams and ameliorating their fears as you go.

You can use tension to create forward motion.

You can, most of all, hand those who have successfully engaged in the funnel a megaphone, a tool they can use to tell the others. People like us do things like this.

Funnel math: Casey Neistat

Casey regularly gets more than ten million views for one of his YouTube videos. That’s a permission asset. People follow him and those people are likely to share his work.

For a recent project, he sent his viewers (when I saw the video, it had received about a million views) to his live stream on Twitch.

I clicked on the link and saw that it had been seen eighteen thousand times. So, about one in fifty people had clicked over.

On the Twitch video, there were hundreds and hundreds of comments. It’s difficult to count, but let’s call it a thousand.

Which means that one out of eighteen people took the time to post a comment.

And of the thousand commenters, perhaps five will go ahead and take further action like sign up for whatever Casey’s building.

1,000,000 to 18,000 to 1,000 to 5.

That’s what a funnel looks like. Your mileage may vary.

The reason that he’s Casey and we’re not isn’t because he has optimized his funnel. It’s because the top of the funnel is regularly and effortlessly filled with people who are enrolled in his journey.

Everything gets better once you earn that trust.

The sustainable direct marketing funnel

There’s a special case here, a funnel that is now sought after by the millions who buy ads from Google and Facebook.

In 2017 these two companies took in more than a hundred billion dollars, about half of all the money spent on online advertising worldwide. And just about all of those ads were measured, and all of them involved the funnel.

Spend a thousand dollars on online ads that reach a million people.

Get twenty clicks.

That means that each click cost fifty dollars.

Those clicks go to your website. One out of ten turns into an order.

Which means that each order cost you five hundred dollars.

If you’re fortunate, in this business we’re describing, the lifetime value of a customer is more than five hundred dollars, which means you can turn around and buy more ads to get more customers at the same cost. And do it again, and again, with all the ads paying for themselves. Magic!

Of course, the vast majority of your profit is going straight from you to the place you’re buying the ads, which is why those two companies are so extraordinarily successful. They’re skimming the profit off the top of just about all of their advertisers. Google might make a hundred dollars per sale in profit, where you, the advertiser doing all the work, are making just ten dollars.

But you can live with that, because the margin on that next sale is still positive. Since you come out ahead, it’s easy to buy more ads.

And the funnel ratchets forward.

This is the direct marketer’s dream. It’s advertising that clearly pays for itself. It lets you scale. You can measure what’s working, do it again and again, and grow.

It’s worth noting that very few organizations do this math carefully. They’re spending and praying, hoping it all comes out in the wash.

But if you’re careful and alert, you can begin to understand what putting attention into the top of the funnel costs you, and you can work to improve not only the quality of your leads but the efficiency of the process.

By all means, work to lower the cost of that first click. But if you do it by making a ridiculous promise in the ad you run, it’ll backfire, because once in the funnel, people will stop trusting you, the tension will evaporate, and your yield will plummet.

Instead, consider focusing on which steps to shift or eliminate. Explore what happens if people engage in your ideas or your community before you ask them to send you money. Invest in the lifetime value of a customer, building new things for your customers instead of racing around trying to find new customers for your things.

When I started out in marketing, I’d guess that fewer than 5 percent of all advertisers measured their results. It was just too difficult to do with TV, radio, and print. Today, I’m guessing the number is closer to 60 percent, because the numbers are so clearly marked. What’s missing is a thoughtful analysis of what those numbers mean.

An aside on funnel math

I’m not sure why funnel math flummoxes so many people, but if you take it step by step, you’ll see it.

The most important thing to figure out is the lifetime value of a customer. Here’s a simple example: What’s a new loyal customer worth to a supermarket?

If all we do is calculate the profit on a single trip to the store, it’s only a dollar or two. Supermarkets have very low margins.

But what if that person becomes a regular shopper? What if he visits twice a week, buying a hundred dollars’ worth of groceries each time, and does so for the five years he lives in the neighborhood (not unusual in many suburbs)? That’s fifty thousand dollars or more in sales. Even at a 2 percent profit margin, it means that there’s a thousand dollars in profit from each new customer over time.

And . . .

What if your supermarket is special, and once someone becomes a shopper, there’s a chance that they’ll tell friends and neighbors and one of them will also become a regular shopper? That makes each new customer even more valuable, because they become your engine of growth.

This means that a supermarket should be eager to sponsor an event for new residents in town, because the funnel is so efficient.

And it means a supermarket ought to quickly give an apology and refund to a customer who’s upset about a four-dollar melon not being ripe. It’s hardly worth a thousand dollars in lost sales to have an argument.

With technology and services, we can go further. If we look at a service like Slack, an early customer might have had a lifetime value of fifty thousand dollars or more. If we count not only what they’d be paying over time, but also the impact on what their coworkers might end up paying, plus the value of growth in shutting out competitors, plus the value of the equity in the company once it was seen as the winner, it’s easy to justify that sort of analysis. The first thousand customers, if they’re the right people, are practically priceless.

Okay, so if that’s the lifetime value, what does the funnel look like, the cost part of the equation?

The simplest way to think about this is with stamps.

If a stamped letter costs fifty cents out the door, how many letters do you need to send to get one customer?

In the old days of direct mail, that’s all we needed to know.

If you need to send a thousand stamped letters to get one order, that means each order costs you five hundred dollars. (Because they cost fifty cents each, right?) If your lifetime value of a customer is seven hundred dollars, buy as many stamps as you can possibly afford! On the other hand, if the lifetime value of a customer is four hundred dollars, you have no business buying stamps. You need a better letter or a better business.

That simple analysis is why you’ve heard of L.L. Bean, Lands’ End, and Victoria’s Secret. They bought a lot of stamps.

The internet makes this faster, more powerful, and more nuanced.

On the internet, you don’t buy stamps from the post office. Instead, you buy clicks from Google or Facebook.

Those clicks go to a website.

That website click goes to another part of the website.

Or to an email.

Or to a trial download.

And then that leads to the next thing, and on and on until you’ve turned that interest into a paying customer.

Every click between the first and the last makes your funnel more expensive, but if you get rid of too many clicks then no one will trust you enough to buy from you.

If your product or service makes things better, the customer will stick with you and you’ll generate that lifetime value we spoke of.

If you can’t see the funnel, don’t buy the ads.

If you can measure the funnel and it costs too much for you to afford ads, don’t buy the ads. Fix the funnel first.

The truth about your funnel

It’s not going to be a magical fountain of results.

I hope it will, but it’s pretty unlikely.

While there are plenty of people happy to sell you a miracle—a self-running, passive funnel of income—these magical funnels are rare.

That’s because the lifetime value of a new customer rarely exceeds the cost of running the ads necessary to get a new customer.

People are so distrustful, and the web is so cluttered, that the ads rarely have enough power to pay for themselves. People see so many ads, with so many promises, that the cost of engagement has gone through the roof.

The truth is that most brands that matter, and most organizations that thrive, are primed by advertising but built by good marketing. They grow because users evangelize to their friends. They grow because they are living entities, offering ever more value to the communities they serve. They grow because they find tribes that coalesce around the cultural change they’re able to produce.

The work you put into improving your funnel is effort well spent. But attempts to build a perpetual motion machine of profit almost always end with bitterness, because they require you to push too hard and too fast to do anything that lasts.

The goal is to prime the pump with ads that are aimed at neophiliacs, people looking to find you. Then build trust with frequency. To gain trial. To generate word of mouth. And to make it pay by building a cohort of people, a network that needs your work to be part of who they are and what they do.

It’s easy to skip the last part, the stuff that happens after the first click. And if you only do the easy, expensive part, you’ll almost certainly be unhappy with the outcome.

Life on the long tail

Chris Anderson’s breakthrough work on the long tail can be easily understood with a simple graph: [credit: Chris Anderson]On the left are the hits. There aren’t many of them, but they each sell a lot. In fact, number one sells ten times as many copies as number ten, and a hundred times as many as number one hundred. A hit is magical.

On the right are the rest. The long tail: good products of specialized interest. Each, by itself, doesn’t sell many copies, but taken together, the long tail sells as much as the short head.

Half of Amazon’s sales are books that are not in the top five thousand. Half!

Half of the music consumed on streaming sites isn’t available in stores. Not half the titles, half the volume.

Amazon can do great with this strategy since they sell all the available books. Each author, though, is in pain: selling one or two books a day is no way to make a living.

If you’re a musician, living on the long tail with your twelve or twenty-four songs is not going to pay any bills. And almost everyone who publishes to an open marketplace is on the long tail.

Below, you’ll see a similar graph showing traffic to websites.

If you’re at the circle, or worse, to the right of that circle, you can’t compete for impact or ad dollars, because even though Google profits from every website they search, most of the people out on the edges are huffing and puffing.

These huge marketplaces (Amazon, Netflix, iTunes, etc.) depend on the misguided hopes and dreams of individuals way out on the long tail. Separately, each one struggles. Taken together, it’s a good business.

Traffic to the most popular websites

The April Fools’ Passover Birthday Easter shirt

Here’s a vivid example of living on the long tail: The other day I saw a T-shirt for sale on Amazon that said “It’s Easter, It’s Passover, It’s April Fools’, and It’s My Birthday.” That’s obviously a special-interest item, one that can’t possibly support the effort that went into it. After all, only one in 365 people qualifies to wear a shirt like that, and perhaps one in a thousand of those would actually wear one, and, I don’t know, perhaps one in a hundred of their friends would think to search for it, so the vendor probably sold four.

But there it was.

More searching found shirts like this one:

Oh, I see. It’s a long-tail business. A few companies are making tens of thousands of different shirts. They’re making them to order. The long tail and the infinite shelf space of Amazon makes this possible. They might not sell many (any) of any particular shirt, but taken together, it’s reasonable to assume that they’re selling thousands of shirts a month.

If you can aggregate a chunk of the long tail, you can make a go of it. But you can’t possibly sell just one obscure shirt and have a shot.

This is the false promise of the internet. That you can be happy with a tiny slice of the long tail. That anyone can sing or write or dance or do comedy or coach or freelance, and so anyone will, and so you’ll be fine.

Except you won’t be fine, because you can’t live on that. The internet can live on that, Upwork and Fiverr and Netflix and Amazon can live on that, but you can’t.

We hear about the outliers, the kids who make millions of dollars a year with their YouTube channel or the fashionista with millions of followers. But becoming an outlier isn’t a strategy. It’s a wish.

There’s a way out

The math of a hit is about more than the benefit of selling a lot of copies. Actually, hits are hits because people like hits.

We like to do what everyone else is doing.

(Everyone means “everyone like us.”)

You’ve probably guessed the strategy: by dividing the market into many curves, not just one, we end up with many short heads and many long tails.

There’s the market for literary fiction aimed at teenagers. The market for books on chip carving. The market for video courses on using a GH5 camera to make movies. And the market for performing improv.

There’s even the market for drone music played so loudly that the audience needs to wear ear protection.

In each of these markets, and a million others, there’s a need for a short head, at least once someone has connected the people in that market to one another, so they realize that they exist, so they see each other, and so they understand what the hit is.

Because it’s the hit that connects them.

Once they see it, they’ll probably want it.

This means that living on the long tail has two essential elements:

Creates the definitive, the most essential, the extraordinary contribution to the field.

Connects the market you’ve designed it for, and helps them see that you belong in the short head. That this hit is the glue that holds them together.

Rocky Horror is in the short head. So is the DeWalt 20V Max XR lithium ion brushless hammer drill.

It’s the hit that unites us. The one that makes it clear that you are people like us.

Yes, the internet is a discovery tool. But no, you’re not going to get discovered that way.

Instead, you will make your impact by uniting those you seek to serve.

Bridging the chasm

We have no idea who discovered the pothole, or who named the Grand Canyon, but Geoff Moore discovered the chasm. It’s the overlooked but often fatal gap in the Rogers curve, the curve of how ideas spread through the culture.

The early adopters go first; they buy things because they’re new, interesting, and a little bit risky.

They do that because they like things that are new, interesting, and little bit risky.

But there’s a problem. There aren’t enough of these neophiliacs to go around. Big organizations, mass movements, and substantial profits often depend on the mass market—they need action from the rest of us.

The mass market is where Heinz and Starbucks and JetBlue and The American Heart Association and Amazon and a hundred others live.

How do you get there?

The intuitive answer is that the early adopters will bring your idea to the masses and you’ll be done.

But often, that’s not what happens.

It doesn’t happen because the mass market wants something different from what the early adopters want. The mass market wants something that works. Something safe. A pattern match, not a pattern interrupt. They take “people like us do things like this” very seriously.

Moore’s point was that few innovations glide from one part of the market to the other. That’s because in order to satisfy the early adopters, you may just need to annoy the masses. The very thing your innovation did (break things) is the one thing that the mass market doesn’t want to happen.

They don’t want to trade in their DVDs. They don’t want to learn a new software platform. They don’t want to read their news online.

To understand how this collision feels, go spend an hour or two at the help desk at the Apple store. Check out who’s there and why. Listen to their questions, and pay attention to their facial expressions.

The middle of the curve isn’t eagerly adopting. They’re barely adapting. That’s why they’ve chosen to be in the middle of the curve.

Where’s your bridge?

The bridge across the chasm lies in network effects. Most of the fast-growing marketing successes of our lifetime have spread because of ideas that work better when everyone knows them.

The early adopters have a huge incentive to bring your idea across the chasm to the masses; it will make their lives better if everyone in their network also uses this idea.

There’s no reason to talk about a new kind of chocolate you really like. It doesn’t make your life better if others eat it.

On the other hand, you spend a lot of time telling people about Snapchat or Instagram or Twitter, because if your friends followed you, your life would improve.

That’s the simple ratchet power of network effects. Connected tribes are more powerful than disconnected ones. Individuals who get in early have an incentive to bring others along, and so they do.

It’s not just technology, of course, although it is often the force behind the pattern interrupts that have remade our culture.

There’s an incentive for me to organize a bus trip to Washington, D.C., to protest gun violence. If more people come, not only will we make more of an impact, but the day will be more fun as well.

There’s an incentive to get your friends to sign up for the local CSA farm share. The farmers can’t afford to come for just a few people in the neighborhood, but if lots of people come, there will be better variety for all of us.

The peer-to-peer movement of ideas is how we cross the chasm—by giving people a network effect that makes the awkwardness of pitching change worth the effort.

The bridge is built on two simple questions:

What will I tell my friends?

Why will I tell them?

It is never the case that people will tell their friends because you want them to, or because you ask them to, or because you worked hard.

Give them a why. And that usually involves changing what you offer. Make things better by making better things—things that have a network effect, a ratchet, a reason for sharing.

Surviving the chasm

The Gartner Hype Cycle is a brilliant meta-analysis of how the culture changes.

The technology trigger opens the door for your art, for the contribution you want to make. It interrupts a pattern.

The Gartner Hype Cycle

In that moment, marketing can help you reach the neophiliacs. Inevitably, these early adopters will hype your work. Of course they will. That’s one of the best reasons to be an early adopter.

When the idea is presented to the rest of the market, it can’t possibly compare to the hype. Hence the trough. This is another way to see Moore’s chasm. It’s in this moment, when the neophiliacs are bored with you and the mass market disdains you, that you will most likely lose momentum. This is the moment when you need a bridge, a new way to step through the culture with stories that match the worldviews of this new, more conservative market.

And then, with generous persistence, you can walk up the slope to the new plateau, the place where you are now indispensable to the masses. A new pattern replacing the old one.

You might not find the bridge

Years ago, my team at Squidoo launched hugdug.com.

The idea behind HugDug was pretty simple: You could build a page (it took about four minutes) profiling any product on Amazon that you loved. If you chose a book, for example, the page would bring in the cover, the title, and a big button with a link.

You’d add your own review and a bunch of relevant content.

If someone found the page and bought the book, Amazon would pay us a royalty, and we’d send half of it to your favorite charity. (This was years before smile.amazon.com, and we were donating twenty times as much to charity as they do.) Our bet was that authors would happily promote their books in this way—it was easier to control than their Amazon page, and they could have pride in ownership in how the information was presented, not to mention the philanthropy of it all.

We also hoped that the typical Pinterest fan would find a page like this not only fun to build, but gratifying, because they’d be helping to raise money for a cause they cared about.

Our thesis was that we’d be able to put in the work to find the early adopters, neophiliacs eager to give shiny new things on the internet a try. We were betting that once they saw that it was working, they’d do it more, moving us deeper along the long tail, generating thousands of pages.

And that as the word spread, we’d bring in authors, and they’d be whales, promoting their books like crazy.

And that people who saw any of our HugDug pages would not only buy at the same rate they’d be buying on Amazon (after all, it was the same price), but would build their own pages (raising their status because they were sharing insights among an elite crowd, all in service of philanthropy).

We kept at it for months, but we failed.

I think the main reason we failed was that while we got trial (thousands of pages were built), we failed to find any whales. There were fewer than six people who built more than a dozen pages or promoted them very much.

The tension dissipated too quickly. People felt like they had no good reason to return after a single visit. The long tail was so long that it wasn’t unusual for a HugDug page to sell zero books in a month. And most people were hesitant to promote a page, because even though it’s easier now, it’s still emotionally difficult to push your friends to visit a shopping site online.

The lesson was that a Kickstarter-like success is always more difficult than it looks. We were naïve in believing that four months was enough time to create an overnight success. We underestimated how difficult it might be to create sufficient incentives, and, most of all, we failed to create a tension dynamic that would have turned our early users into connected ambassadors who would have turned the ratchet as we crossed the chasm.

We didn’t do enough to tell a story about status, and we weren’t nearly specific enough about who our first customers would be, what they might have wanted, believed, and said.

Case Study: Facebook and crossing the biggest chasm

In our lifetime, very few brands have crossed over fully to the mass market. Starbucks, which is familiar to most people reading this, hasn’t made it all the way, and neither has Heineken or even the bagel.

But Facebook has.

This graph shows what that looks like:

Each bar is users during a given year (the month changed midway, but the idea is the same). Sometime around 2008, a whole new bunch of everyone started using Facebook.

That leap happened because the reason for signing up changed from “this is sort of interesting” to “this will help me immeasurably” to “I’m the last person on earth who’s not using this.” Starting at Harvard was part of the secret. The insecure Harvard student had an urgent status need: to find out where he or she stood in the pecking order.

As it spread through the Ivy League, Facebook crossed one local chasm after another. At each school, a neophiliac went first (because they like going first) but the relentless ratchet of status kept it spreading. The more friends you had on Facebook, the higher your status. The other people already on Facebook had a status you admired (other Ivy League students). Facebook was planted in the best possible spot, surrounded by insecure, high-status young people, with fast internet connections, plenty of spare time, and an insatiable desire to be seen, to connect, and to move up in some invisible hierarchy.

Once it spread through that local tribe, it wasn’t hard to jump to other colleges, and then, finally, the public.

This last chasm leap is the billion-dollar one. And once again, status roles kick in. Because Facebook was able to combine nerdiness with status, they were able to surround the middle of the market and create an irresistible ratchet. Join in, or face your worst fear—be socially isolated.

As much as most marketers would like to make this last huge leap, it’s unlikely. The market is just too big, and the typical network effect isn’t that strong.

Crossing the local chasm

The good news is that you don’t need to set out to cross a global chasm. A local one can change everything.

The local elementary school is a fine example. One kid brings in a yo-yo on Monday. But he’s the wrong kid on the wrong day.

A few weeks later, a charismatic fifth-grader brings in her yo-yo, announcing that she’s starting the Yo-yo Union, an exclusive club that’s open to all. She’s pretty good at tricks, but not so good that she’s intimidating. And she brings three more yo-yos with her, for her friends.

Pretty soon, the four of them are out on the playground, walking dogs and sleeping. She’s chosen wisely—each of these early adopters is a leader in her own right. A week later, there are thirty kids with yo-yos on the playground. The cost of entry is low, the payoff is quick, and the connection feels real.

A week later, it seems like the whole school is doing it.

Because yo-yos are a fad, without stickiness, they cool off as fast as they spread. Of course, it doesn’t have to be that way if you build in identity and persistence.

The same crossing happened with Uggs, with black backpacks, with penny skateboards.

We only notice the ones that cross a local chasm, but the early adopters are always experimenting around the edges. It’s when the combination of adoption and network effects creates enough tension for the idea to cross the local chasm that we notice it.

Clean water in a local village

For the lucky and privileged, clean water is a given. We’ve never known any other form of water.

For a billion people around the world, though, the norm is dirty water, infested with parasites. Often requiring a walk of several hours to fetch, this water is essential for life, but it also makes people sick.

Consider the case of Water Health International. When WHI arrives in a village with its water purification kiosk, a few residents immediately understand the possibility for impact. They buy a special Jerry can from WHI and then pay to have it refilled every day. The few pennies spent on clean water are quickly earned back in time saved, increased productivity, and reduced medical expense.

And yet, not everyone buys the water right away. Most people don’t. In fact, it follows precisely the same adoption curve as just about everything else, from toys to computers. The early adopters buy it first. They may be educated enough to realize how powerful an input clean water is, but it’s more likely that they simply like buying things that are new.

Not only are these early adopters eager to go first, but they’re eager to talk about their experience. The brightly colored water jugs that WHI requires (so they know that they’re not refilling an infected vessel) are a badge of honor and an invitation to converse. But still, the early days are always fairly slow. Changing a multigenerational habit that’s as close to survival as water is does not happen right away.

Still, the early adopters won’t stop talking about it. It’s not a fad; fresh water is needed daily, forever. And water is an easy thing to share and talk about.

To further the local shift, WHI sends representatives to the local school. Outfitted with a microscope projector, the rep works with the teacher and has each student bring in some water samples from their home.

Projecting the samples on the wall, the microscope tells a vivid story that resonates with the eight-year-olds in the class. This is what germs look like. This is what parasites look like. Inevitably, the students go home and tell their parents.

And now status kicks in.

When your young child talks about his neighbors having clean water . . . and you don’t. When you see the respected members of the village hierarchy carrying the distinctive Jerry cans. When you hesitate to host someone in your home because you don’t have clean water to offer them.

This is a ratchet, but not one based on obvious software network effects. It’s based on the original network effect, the one built around people in proximity. As more and more people in the village get clean water, those without become socially isolated and feel stupid as well. Most can afford the water (because of the time and impact savings), but the emotional shift is the difficult part.

Within months, the water has crossed the local chasm from the early adopters to the rest of the village.

An aside about B2B marketing

B2B stands for business to business—when a business sells something to another one.

It’s a third or more of many markets. And the marketing of B2B is no different.

It seems complicated, something completely separate. Huge numbers, RFPs, a focus on meeting spec, a price war, long sales cycles, and no fun at all.

But it’s simpler than that.

Consider the growth of LEED certification in the United States. The Green Building Council has a set of efficiency standards that buildings (one of the most expensive items in the world) must meet. When they first launched, only two buildings a day were submitted for certification.

These were the early adopters—architects and builders who wanted something new to talk about.

At that rate, it would have taken a hundred years to hit the numbers they hit after just twelve.

What happened? Just before the housing crisis hit, the number of certifications leapt forward, and it kept going. Why?

Think about it from the worldview of the real estate developer. He or she is about to spend a highly leveraged sum of money to build a building, a building for rent or eventual resale.

If just a few people insist on the LEED certification in a building they rent or buy, it’s enough to confer status on people who have one of those buildings. And if you skimped when creating the building, you’d have to deal with the regret and fear you’d face if you ended up with a building seen by some as defective.

And so there’s a race to the top.

Each developer has a narrative, and that narrative leads to the selfish (but ultimately positive) decision to get certified.

The one question that every business buyer asks herself is, “What will I tell my boss?” You’re marketing the answer to that question: “If you choose this, you can tell your board/investors/boss that you . . .” The marketer who is out of ideas or energy finishes that sentence with, “. . . bought the cheapest one.” For the rest of us, there’s the opportunity to finish that sentence with a narrative about status, fear, affiliation, belonging, dominion, safety, commitment, insight, or any of the other emotions we’ve discussed.