Discussing the Value Proposition with Craig Jacobson
Discussing the Value Proposition with Craig Jacobson
Transcription of Episode[00:00:00]
Ryan Chapman: Hello, this is Ryan Chapman with Fix Your Funnel and in today's interview I have a very special treat for me and for you. And we have someone I've always looked up to and admired, one of the smartest people in any room that he's in, from my perspective, he doesn't like hearing that because he's also humble.
That's Craig Jacobson from Open Spaces. So, Craig, it's a pleasure to have you here. I know that you didn't probably like that introduction because you always kind of wave me off when I say stuff like that, but it's good to have you with me.
Craig Jacobson: Thank you. I like the sentiment behind it. I just don't think it's actually accurate.
Ryan Chapman: I knew you were gonna say something to that effect. Well, you know, we had a little pre-talk before we started recording and we talked about, covering some topics that we felt would be most valuable to folks who are in business, but maybe don't have a Ph.D. in business. And have missed a few things along the way.
Maybe fallen into some ruts or some pitfalls [00:01:00] because they got some advice and maybe misunderstood it, and as a result, started doing things backward. If you're starting with somebody that feels like, okay, I've got some sort of business going here, but I really don't know what I'm doing to try to grow it. How do you help them to know where to focus? Where do you start?
Craig Jacobson: Well, I always do an assessment of their competitors, their customers, and figure out what the objective facts are. Because most business owners that I've talked to have something in mind that they want to go do and after the assessment in almost no circumstance, what they want to do is what they should do.
Ryan Chapman: Oh, interesting. So they're off to the races before they've even evaluated where the course is.
Craig Jacobson: Cause how they process information as they go to courses. They listened to guru and he said he's got this thing and it made a million dollars in two weeks and you should do it too and would make a million for you.And it's not suitable for their circumstance and they can't see it. If it was ever true that what the guru is saying. I don't know if it [00:02:00] was never true. The question is will it be true for them? But you know, they're, they, they've kind of bought it hook line and sinker because they, liked the salesman that was pitching it.
So I think that the basics of business are very simple. Peter Drucker, your purpose in business is to get a customer that has a problem, solve that problem and make a profit. The reason that most small businesses fail is they run out of hope or they run out of money. So many businesses never get to the point.
So I believe that there's the first phase of when you're building marketing, where you're learning your way into the marketing structure and how to optimize the marketing funnel that you've created for your business. So you'd have a learning period. Then you apply the learnings and adapt. You figure out what to work on and how to experiment your way into making it work better. And then you actually get to the point where when you spend a dollar on marketing, that's the most magical moment that I have with business owners. When for the first time in their life, they spend a dollar on marketing and they got [00:03:00] $5 back.
So before that, marketing is an expense and they say, I've only got $5,000 a month to spend on marketing, but when you're at the point that you've spent $1,000 and you made $25,000 then it's like, Craig, I want to spend $10,000 starting next month. It's like, oh good, because now you're expecting you're going to make, you know, $50,000 or $500,000 or whatever.
Ryan Chapman: That's a concept often talked about but not often realized. In order to realize that for somebody. Cause I, what I've noticed is you can come into just about any situation. And I, I don't know exactly how long it takes, but I would imagine within an hour you've got a pretty good, as long as they can answer your questions, a feel for the lay of the land in that business.
Craig Jacobson: And land is looking at the customers.Anybody can do that. You know, you grab the email list, load it into Tower Data and go look at the age, gender, income, education, person, children, are they renters? Are they [00:04:00] owners? What kind of cars do they drive? That sort of stuff. Like, look at who the people are that you've got on your list and then take that same list that you're having problems getting people to open your emails from, if you're using emailing. Or if you've collected cell phone numbers, same thing applies. You can enrich off of cell phones are off of emails or off of visitors to a website, email ashes, anonymized information. So, you got to go see who the people are, and then you start to observe how they behave with your content.
So you see what content they bite on, what are they willing to click on, and what are they willing to open? What are they willing to go click and visit our website, which are the most popular pages, where the most popular place on their page is.
Ryan Chapman: So when you're coming in with a brand new business that you're starting to look at, seeing if you were going to be willing and able to help them, you first start running this analysis on who their people are through Tower Data. Then you're looking at what data they do have on interaction with content and trying to find out, you know, [00:05:00] what's biting and then are you trying to look at that demographic data and then this behavior and see, okay, is there some correlation I can make sense of or do you even care?
Craig Jacobson:Yeah, I kind of come to a theory of who really the customer is. So you look at who are the people that purchase from you. You look at the customer level and you look at the visitor level. You know, the people that visited your website or opted into your email or text list, enrich those people. And in many cases, the people that are purchasing, they have money, they have that problem, and they meet a profile. They're married, they've got kids, they own a home, they've lived in their house for seven years, 10 years or something like that. And then I've got a list of people that are visiting the website and not opting in, and they have less money. They are renters. They don't have kids. They're single. And it's like, oh, well the visitors then aren't opting in. So the site's doing its job. There's no problem there. It's doing its job, but being able to, you know, on the other side of the opt-in offer, it's selecting out the people to become the customers.
[00:06:00] Ryan Chapman: So you said something before we started recording, which was that where you see most business owners go that are really aware of what they should be doing is they first focus on traffic because they think that's the hardest problem.
Craig Jacobson: Yeah.
Ryan Chapman: But it sounds to me like the reason that they feel that way is because they haven't done these first few steps that you're talking about.
Craig Jacobson: They don't know the who. They just think if I get enough people there, I'm going to get this. I'm randomly going to get enough of the right people, so I just need more traffic. And that's why it seems like if they had a genie come out of a bottle and I can grant them three wishes, everybody's first wish would be traffic.
Ryan Chapman: What would your first wish be?
Craig Jacobson: Better value proposition is wish number one, better engagement story number two, and what will set you free is setting up measurement to be able to see what's wrong in the system.
Ryan Chapman: Let's hit it in that order. I know you were kind of going through a flow. Do you want to go back to that flow or do you mind if we talk about these three wishes?
Craig Jacobson: Let's talk about it.
Ryan Chapman: Yeah. I think it's [00:07:00] really valuable for people to understand, like you mentioned, the value proposition. I know those are words that we're very familiar with. How would you describe that to someone who isn't familiar with the term of value proposition?
Craig Jacobson:Okay, so somebody is coming to your website or to your business because they've got a problem. So why should I trust you and give you money to solve my problem? Why you, why now? I mean, you got to have a good answer for that.
Ryan Chapman: Do you find that people that you start to work with sometimes struggle with these two? Why you? Why now?
Craig Jacobson: Yeah. They just think I'm in a market. You know, I'm in this aisle of the grocery store, I've got cornflakes and I'm going to offer cheaper corn flakes or another entry cause cornflakes are hot. Which is a very bad idea for a business. So they have a business model problem, but you need a sort of exclusivity and appeal in your value proposition. So why you is exclusivity. Why now? How do you create urgency? Why should I make a decision? Why should I not just kick the can down the road and think about it later?
Ryan Chapman: Which is what most people do if they [00:08:00] don't decide to take action now.
Craig Jacobson: Yeah. So you have to have a compelling reason. So that's why people do launch models, it's not persistently available. Your product or service is available now, and then it's gonna go away. So you're going to make a decision, get off the fence.
Ryan Chapman: I know you've done a lot of launches, you know, kind of followed that formula.
Craig Jacobson: It's lame because it's simplified. Anything that simplifies the problem is really appealing because a launch model says you gotta do it before the 21st at five o'clock and then 'cause poof, the offer's off the table and we're not going to have the product available until we launch again. So then all you're focused on is why me? Why should you select my solution? That's what the deployment of persuasion is about.
Ryan Chapman:So, and this is why so many people come and say, okay, that's what I want to do. Let's do that. And you're not saying, oh yeah, that's the way to go. You're saying, well, hold on. That may be just a simple way to reduce our number of questions we have to answer down to one, but that may not be the right way to go. We'll get back into that cause [00:09:00] we're going to talk about a business model and stuff like that a little bit. But these two questions are what help you to start organizing your value proposition. So at this stage, this is worded in some sort of sales copy manner. It is just the concepts. Why you, why now? And that is what you're working on initially to set kind of a foundation for the next step. Is that what it is?
Craig Jacobson: 'Cause that's the final question. I mean, somebody is talking to a sales rep on the phone or they're on a landing page and looking at an order form, a buying out button, something like that. So the answers to that have to be in their mind.
Ryan Chapman: Yeah. So you were just talking about why you, why now, and I was saying that's foundational for everything else. And you say you start to talk with a sales rep.
Craig Jacobson: So that's why if there's a genie, and if I could have a value proposition, that's a no brainer, just to make a decision right now with you, it's game, set, match.So yes, you're the same category as other products or services that [00:10:00] could solve their problem. But if you've got, a unique value proposition that is very compelling and easy to understand. The value proposition shouldn't be like a paragraph. It's a series of maybe two or three short sentences.
Ryan Chapman: Okay, so one, this is always the first place that you start. Once you've done your first analysis of where the business is. Once you've looked at the data, seeing what the demographics are, how are they behaving? Kind of getting a feel for the story of who the customer really is for a business. Now you go back, you say, okay, now how has this value proposition? How powerful is it?
Craig Jacobson: How can I strengthen the value prop or how can I create a better engagement story that is the story that leads up to the final sales, the sales story?
Ryan Chapman: So tell us about the engagement story. How's the engagement story related to the value proposition? 'Cause it must be.
Craig Jacobson: There's sort of people in the world that could benefit from your product or service. They're out there right now, there's tens of thousands of them for almost any business. So [00:11:00] you would have to create traffic. So find a way to get a message in front of those people. So my preferred way is to do advertising, and then the ads are the engagement message that's going to get them to click and bring them to your website or to your content, so that's going to bring them to you. That's the engagement story, or that's the beginning of the engagement story, because the engagement story starts at the ad copy that brought them in. That was the interest message, and then there's an engagement message that hopefully performs the function of holding people's attention for three to five minutes.
Ryan Chapman: So this interest is the first part of your ad, whatever gets them started down this path of looking at our company engagement stories. What really pulls them in.
Craig Jacobson: Yeah, and I used to think it really mattered that what brought them in had been coherent with the arrested engagement story and the final sales story. Now, I don't think that so much anymore. I think that it's all about the transition. You have to be able to transition them from whatever brought [00:12:00] them in and then into your engagement story.
Ryan Chapman: So frequently in advertising, what people are interested in is not what is really, it's not the thing that they're after. There's two different things, like with the person that comes to you and says, okay, I want to do a product launch and I really need help with traffic. That's what they're interested in, but are you saying that then you're going to take them from that say, well, you know, actually that's, that is, those are important elements, but let's get you in, and then you start telling your engagement story and then you help them by the end of it, go, oh, no, I actually want to work with Craig because Craig's not just going to give me the things that someone told me I needed. He's going to hear me out and then he's gonna develop a plan. And this is, there's like a whole approach here versus just throwing stuff at the wall and seeing what sticks.
Craig Jacobson: I think my clients want to work with me because I'm going to make money with them, not from them.
Ryan Chapman: Yeah.
Craig Jacobson: I want to apply my skills and experience and the wide variety of tools that I use to make money [00:13:00] for them.
Ryan Chapman:Okay, so you've partnered up with them essentially on their side versus being across the table doing an exchange with them.
Craig Jacobson:Exactly. I think that's just a better way.
Ryan Chapman: That's essentially the value proposition then.
Craig Jacobson: Yeah, that's my differentiating value proposition. Yeah. There's a whole bunch of other digital marketers out there that are good, but all of them want you to pay them for their time or for a project or for a module or something. I want to make money with you. I want you to sell your thing and let me come up with a structure that will then make it work.
Ryan Chapman: For those that weren't paying attention to what was happening, cause there's two levels of everything that goes on, at least, obviously more levels than that, but. There's what seems to be happening on the surface. So a case in point, I teach an early morning seminary class to high school students and, we were talking about some scripture and they were reading the scripture. It was talking about an interaction. And I said, okay, well what does that actually tell you about God? So there was the interaction, which is where most people focus. And then there was the, what can you infer [00:14:00] from that? So what was happening here is you were teaching us about value proposition, engagement story, but really if someone was paying attention fully, and you may have to rewind to really pick up on this, Craig, at the same time was showing us an example of engagement. Story because you, you were presenting the value proposition through that whole process of what you're talking about. So I know you weren't intending to sell. In this conversation.
Craig Jacobson: It wasn't my intention. It was to create an example.
Ryan Chapman: Yeah. But it was a natural part of how you communicate because these things have become ingrained into you. And so the engagement story was exemplified as well as explained there. So if you go back and rewind this and listen to it again, pay attention to what Craig is talking about, what he's saying and what you'll see is he's really creating an engagement story. I think it was unconscious competence. 'Cause I know you weren't trying to sell anything on this. We were just trying to teach guys.
Craig Jacobson: But I think that the center of the engagement story is, and [00:15:00] there's a really good book about that human beings have only seven different major arcs of story. Look, one is "boy versus girl". Maybe one is sort of like the "who done it". And then the most popular one recently as manifested by StoryBrand or 20 years before. So StoryBrand apparently invented it recently cause nobody has any memory of anything that had happened in the past, it's very popular in the 80s, was the heroes Epic. It was taught by Joseph Campbell and the KPPs series. But that's sort of like the arc of the story of Star Wars.
Ryan Chapman: Yeah.
Craig Jacobson: Yeah. Like, you know, the first is that coming to awareness, I'm not worthy. And then seeking an expert to help you go on the guide to go challenge the monster you know you've got to go. It's a great story. And it's in classic art. It's embedded in oh, almost all cultures, works pretty much everywhere in the world. But, it's just one arc of a story. But if you simplify it to its core, what the buyer's going through is, they're in a [00:16:00] position that is not so good and they want to get to a place that's, that's really good. That's better. And stay. You got to both describe the place where they're at right now, better than they normally can articulate it. The new place they're trying to go to, and then there's like a chasm between the two. And the reason that they're giving you money is to help them navigate that chasm.
Cause they don't have the skills, they don't have the knowledge. They don't have the time, whatever it is to be able to, to do that on their own. So that's where they're hiring you as a guide to buy your product, your service, to bring them from... Let me use an example, we're going to do a kitchen remodel.
So we have a kitchen, which we like, but we want it, we have a vision of a better kitchen. So as I'm consulting with these different contractors, I need them to help me visualize what the new future condition would be and then what are all the problems that I'm going to encounter along the way, like redoing electricity, redoing gas line, redoing the roof and [00:17:00] venting.
Ryan Chapman: Bringing up all the problems is something that I think a lot of business owners and their marketing assume the prospect already knows.
Craig Jacobson: But I think it's very important to bring those up.
Ryan Chapman: Yeah. So you're saying you need to be explicit about pointing out all the potential problems cause there's a good likelihood they're not aware of any of them, or at least not many of them like they should be in order to make your smart decision.
Craig Jacobson: Because the skilled guide can tell you all the pitfalls along the journey. And you're hiring them as a Sherpa. If you're selling whatever, like the kitchen remodel, I'm hiring you because you're going to be my guide to go from where I am to give my wife the kitchen that she had dreams of.
Ryan Chapman: We really all are looking for these guides all over the place. Dan Kennedy put a little bit more crudely. He said we're all walking around with their umbilical cord in their hand, looking for somewhere to plugin. But in reality, all of us are looking for some sort of guide, but we just need to know we can trust them.
Craig Jacobson: So I think the engagement story at its core is about doing a better job of describing the current [00:18:00] condition or doing a better job of describing the future condition or doing a really good job of explaining the pitfalls in any one of those is very interesting and very compelling to people that are interested in whatever your offer is.
Ryan Chapman: Yeah.
Craig Jacobson: And I've always felt that if you could redefine the problem in a way and describe the problem 'cause they would describe their problem one way and you describe it differently, you win. Oh my God, that is, that is really my problem. Okay. Yeah. Okay. Now I know what you're talking about, so show me how that's going to work.
Ryan Chapman: You know, it's funny, as I was just thinking about the fact that many people, you know, can get caught in the wrong place and they go well, why are Ryan and Craig, if they're so smart, why are they talking about all this story stuff and value proposition? I want to hear some fancy, automation stuff, but that's exactly the problem, isn't it?
Craig Jacobson: Yeah. They spend all their money on, the whipped cream and the frosting on the cake, and they don't bake a good basic [00:19:00] cake.
Ryan Chapman: I call all the marketing automation things, mechanics, right? So at the end of the day, you do, you do need some sort of mechanics in order to implement a good marketing program, but if you don't have this meat of the actual offer, the value proposition, engagement story. If you, you know, if you don't really have these items, then what you have is a bunch of bones with no flesh on them. And so this is like the real flash that makes the whole thing work. The mechanics are only valuable to the extent that they facilitate. In fact, I would go so far as to say, and this is kind of maybe self-defeating in some ways, but I would go, so as far as to say is if somebody had a really great value proposition, engagement story, and then they had kind of weak mechanics. I mean, the mechanics weren't the best. They will outperform the person that's got great mechanics, but terrible story and offer proposition...
Craig Jacobson: Absolutely.
Ryan Chapman: Because there's [00:20:00] nothing there. That's a, that's a nothing burger. You need to have something there.
Craig Jacobson: I've spent a lot of time looking at lots of competitive websites, so the web is scattered with a bunch of websites to hold people's attention for one minute. They look at one page and they leave.
Ryan Chapman: Yeah.
Craig Jacobson: Who makes a decision in one minute for something substantial? So that lack of engagement is, is the greatest problem sort of across the web for all these small businesses. But if you can hold someone's attention for five minutes and talk about their problem, you can get them to look at three to five pages of your content. You win. That's the better story. The better story will always beat because I can then, then I just steal the tactics that drive traffic for those people that are running them to a bad story or that bad value prop.
Ryan Chapman: You have some things that we won't even touch on. Did they give you some serious advantages? But those only come because you've, you've focused on the core first. If you didn't know who you, who you actually are trying to sell to [00:21:00] because you didn't do the demographic information, you didn't do the comparison or an analysis on content consumption and that interaction. If you didn't do that, and then if you didn't take the time to say, okay, why me and why now? How am I going to help them to see that they should choose my business now? And then you didn't put together a good story where you talk about their current reality better than they can describe it, the future reality in the way that they can imagine it. And then all the pitfalls in between how you can help them through that, all the rest is for not.
Craig Jacobson: Yes, and it's most common that people kick that down the road and they figure it out, and it's like that's the first thing to strategize.
Ryan Chapman: You know it's because it makes the head hurt.
Craig Jacobson: Well because until you, until you do some tries, you realize that I don't know how to do this and I've got the wrong people as my customer. I don't have a story that's engaging. Can you make this story? Can you make them want that? That's really on some level what [00:22:00] people are asking frequently. They don't like it. You just need a new story. You know? You need a value prop.
Ryan Chapman: You brought up at the beginning. And I've, I've said the same thing. The reason so many bit small businesses go out of business is, I say cashflow. And you also throw in a really important concept, which is the hard part, which is hope, right? But hope, I think hinges in large degree on cashflow. You have to have the cash for long enough that you can learn what business you're actually in and hopefully get everything else aligned to that. You talk about the business model as being a really critical discovery, like what is the proper business model given your circumstances? Do you mind if we jump to that and talk about how do you evaluate that?
Craig Jacobson: There's a lot of the different elements in a business model, but if you break it down to the three core things that I, that I care about. What are you willing to spend to get a customer? What is their fee? What is the dollar amount of their first transaction with you, and what is the lifetime value of that customer? From that, you can, you know, actually how you should [00:23:00] be structuring your marketing. So I believe in most cases, in many cases that I had to choose not to work on, they have a bad business model.
Ryan Chapman: Are business models recoverable? Like if a company has a bad business bottle, can you reform it?
Craig Jacobson: Yeah, of course.
Ryan Chapman: What gets in the way though of reformation?
Craig Jacobson: Let's imagine you're, you're a normal broke massage therapist. It's selling a transaction and not busy and not busy and then sells another transaction.
Ryan Chapman: This person probably doesn't even have any realization that their, their inventory is time either.
Craig Jacobson:Yeah, but they need to, if they can kind of understand that, then they would realize that the coolest business model that's been run in their category is Massage Envy that sold $40 a month subscription so then, then that shapes everything about fulfillment and shapes everything about being able to get customers.
Ryan Chapman:That's interesting because you wouldn't traditionally think of a service that is a time for money business, being able to convert itself to recurring revenue.
Craig Jacobson: [00:24:00] But if he can, if he can convert to recurring revenue and sign someone up, then you're worried about, cause you can spend more because of the expected lifetime value is what you're trying to live on. You're trying to make sure that you don't have chai churn rate in that people don't unsubscribe, but it's like membership sites are a good example of that because then you would be worried about just the right people that will stay for two years. So then you tend to put your focus on choosing the right people, not just getting more people to do a transaction with you.
Ryan Chapman: That was probably the, the luckiest thing that happened to Trent and I, when we started our Short Sale Genius company was that we happened to stumble into. Because we are, we're standing in the parking lot. The day before we did our first presentation, where were we going to sell? And Trent said, okay, I think we should give this calculator to them. And I just, something I had heard, you know before that, fortunately. It came to my mind, which was, [00:25:00] no, you want a membership of some sort. So I didn't understand why. Right. I didn't know that the, the whole cashflow was going to be critical. I didn't know that you weren't going to get enough up front and your sale to really grow a business. That would be fantastic. And so we just stumbled upon it, but that literally saved our financial lives in terms of our business, because. When all of our competition, who didn't have the recurring revenue portion to the model, they just had this front end and they were higher front end in some ways. As soon as the front end education portion of the market dried up, they were out of business and bankrupt.
Craig Jacobson: Yeah.
Ryan Chapman: Because we had created a recurring revenue model in addition to the upfront, first purchase. Not only were we able to continue marketing well past the time that they were out of business, but we had four years after that of recurring revenue that they never saw. And so for me, it's really difficult because I've got, and so [00:26:00] I don't know, I don't want to use the word addicted, although that's almost what it is. To the recurring revenue concept that I almost can't imagine being in a business that didn't have it. Are there some business models that don't have recurring revenue that you still see as being viable?
Craig Jacobson: Yeah, but many of those are, they haven't had high initial transaction and then somebody got, like with, for example, a medical condition. And they need a wheelchair and they're going to need it again in five years. I needed it again at 10 years. So you know. There's still a recurring element to it. It's just not a subscription. It's not a subscription you're going to get, you're going to get routine repurchases. So those customer types as business models are, always better than just a transactional one is I can go, I can go toe to toe with a transactional one. I can drive him out of business. I can take all their customers, or I can buy them. And you know, let's, let's go into the other level of [00:27:00] marketing. So most of the people we're talking to. Are in, they've made a choice that the big business question that you have is, here's a customer, here's a problem that they've got. Should we go build from scratch a solution for that? That's the build option.
So most of the people that are listening to this are probably just default. Chose a build. And then, you know, when I worked for big companies, our question was always, should we build it or buy it? So if somebody, if you see a competitor in a space that it's got a low lifetime value and you've got a bigger lifetime value, you should buy their business buy their customers and converting to your higher-priced offer because those customers can be better served You are offering more value to them, and then you're making more earnings from it.
Ryan Chapman: For the person that fell into the build first, you're saying once they get to a certain point where they have the capital or they have at least the system and the program, so they've gone through the steps. You've talked about they've, they've actually turned marketing [00:28:00] into an investment instead of an expense.
Craig Jacobson: Yeah. You need to hit the point that the most magical point where marketing is no longer an expense because most of the people listening to this marketing is still an expense. Because when you shift from, from that to it being an investment. It's miraculous. You know how these small businesses say, I've only got so much money a month that I can afford to use for marketing. So that is the tell that says marketing is an expense. They've haven't gotten to the point where it's an investment. So the cool businesses are when you spend $10,000 or spend $1,000 you're going to make that. You're going to get that money back and a certain amount of money on top of it. So like I've got running one right now in, again, the wheelchair space. We spent $1,000 last week and we made $130,000 in revenue.
Ryan Chapman: They might want to spend another thousand dollars.
Craig Jacobson: Yeah. So then, of course, it took like two hours after he looked at that report to say, Craig, I want to put $20,000 into [00:29:00] it this month.
Ryan Chapman: Now, in what you're saying is a natural progression when you get your business into the stage is now you can say, Oh, who else is my competitor? But hasn't figured out the business model in the marketing model.
Craig Jacobson: What else could I do like this? Because now I get digital, not, and now I get the magic at this.
Ryan Chapman: Okay. So you mentioned though, is every business model, so every business model does have some form of recurring purchase that will happen in it that you like?
Craig Jacobson: I would say, yeah,
Ryan Chapman: Because that allows you to increase the lifetime customer value in a way that you can afford to spend a little bit more to get the customer in the first place.
Craig Jacobson: I like cosmetic surgery because people get cosmetic surgery. Have something done. And then six months later, they look in the mirror and there's something else that they want to have done. So the average person has five procedures. So you're, selling the first procedure. So you're using that to recoup your [00:30:00] decree relationship and create real value so that that person's going to come back to you again and again and again. So the first transaction may be $5,000 but that customer is going to be worth $50,000 over the next 10 years. Loved, love those models.
Ryan Chapman: So you have to have your model in place to make sure that you're able to have a good return on investment to further your marketing dollar.
Craig Jacobson: Because you can run, you do the first thing for free, a free trial offer and you're going to lose money to create a customer and then you're going to live on the lifetime value. That's, that's a valuable marketing model because there's two things.
Ryan Chapman: Okay? So this is where your marketing model starts to marry in with your business model.
Craig Jacobson: Yeah. Cause that the marketing model is going to tell you where you're going to spend time, attention, and money. So if it's a backend, if you're making your money on LTV and repeat purchases, then it's all going to be about making sure the first transaction is good enough that you get the second transaction then you're nurturing [00:31:00] onto, to customers to get them to buy again.
Ryan Chapman: There's an underlying assumption in this whole thing that a lot of people. No, not everybody has, I shouldn't say a lot of people, some people don't have, but that you have here, which is that you recognize the value and importance of the customer relationship and making sure that's a quality experience for the customer because it's not about the transaction. It's about the lifetime.
Craig Jacobson: It is. I think that's true even to transactional-based businesses because you want to be able to turn every customer into somebody that gives you a review and then refers their family. So that tells you that you're delivering value, not just creating a transaction, that you made something and took some of their pain away. So I think a lot of people were sloppy with it, but the big principle that I think is you have to have a really good business model because that's going to tell you how you're going to allocate money, and then when money's going to come back to you. So, you know, part of that, the business model we didn't talk about, we talked about it before we got on this, webinar was the cash [00:32:00] cycle on the business.
Ryan Chapman: So talk a little bit more about the cash cycle. I know it seems self-evident for you.
Craig Jacobson: Okay. Well, the cash cycle is, you know, any accountant here, your accountant should, everyone should have a good bookkeeper and accountant, but they can explain it to you. So like, I'll use an example of my medical device business. Cause I've been running that thing for 20 years and kind of know like the back of my hand. So I've got to go buy inventory, you know, which isn't the, in many cases, fabric that's going to then be sent over to somebody to be slit and then it'd be sewn together and then we do final assembly on it. So before an order can ship, we have to buy the raw materials to turn it into the form of the product that's gonna be put in a box and shipped off in.
Their credit card's going to be run. So I have to place orders. So that's putting cash out, and then it gets converted to a point when it's almost ready to being the final product. Or in the case of we buy. Lots of thermoplastic. So then we polluted our injection mold. These little pellets, it's melted down [00:33:00] in the niche, be formed in the shape of the product that they're buying. We glue the pieces together, put it in a box, and run their credit card, so before I can ship a product that you were going to buy today, I had to invest money upfront in inventory that's sitting somewhere in my supply chain. You know? Because I have outside contractors doing a lot of work and then the final form of it arrives at my doorstep and then I can assemble those things, count it, inspect it, put it in a box, run your credit card, then I get money right there.
The credit card transactions, the money is available off of once to put the product is shipped in a common carrier. I can run your credit card and I have availability of that money in 48 hours. so my real cash cycle, because I have to put cash out for inventory 30 days beforehand, in some cases, 60 days beforehand for inventory, for a physical product business.
And then I do have a lot of my product is going through big distributors. So those big distributors in our [00:34:00] contracts, they have to pay us within 30 days. The average results over the last. 20 years is they pay us in 47 days. So I planned that if once we put the product in a box and ship it, we aren't going to see that money for.
Two months. So that means my cash cycle is, I have to put product, I have to put money out into inventory 30 days before I can actually put it, you know, have the final product ready, put it in a box. And then after that, I'm waiting out the terms. So many people, they're selling info products or you know, on-demand services, they have a different problem.
That's kind of related to the cash problem of what do you have to put money out for the fulfillment side. And so I like high margin businesses. When you've got, when you have good cash cycles, so information product or a software service like yours, you, you had to invest years in advanced, hundreds of thousands of dollars in programming.
Go test it, cleaned the [00:35:00] code up, and that, that's just a laborious process. So when you make an incremental investment. And creating a new feature for your product that you think is going to get more customers to sign up for your product. how long is it before you get that investment money back that You sell a subscription that bought it for that added feature?
Ryan Chapman: Yeah. See I don't even think about that because I'm not aware of my cash cycle the same way. I couldn't even tell you how much it costs cause we have, you know. Six different developers that are working on stuff at different points in time, you know?
Craig Jacobson: So you're spending hundreds of thousands of dollars building features that, I mean, on some level, you look at that as overhead, but really that's an, that's an investment that can be amortized. Yeah.
Ryan Chapman: And that in my case, you know, sometimes we'll build products that nobody uses to.
Craig Jacobson: that's the, that's the problem. And with the credit card, you don't have the other side, which is once somebody signs up, they promised this pay in 30 and they pay in the 60 or [00:36:00] 90 or 120 or whatever.
Ryan Chapman: Yeah.
Craig Jacobson: Because you don't really have that problem cause you can immediately turn it off.
Ryan Chapman: There's a little bit different from your situation where the industry is very set the terms on what's acceptable.
Craig Jacobson: But the big principle is the business model determines your financial structure. We should be making decisions of investment in fulfillment, but it also tells you that you need to marry your marketing structure, to your business model. So you have to have an alignment between the marketing style that you're going to use. Because I see it sometimes people go to a course and they say, I want to do a Walker style product launch because they attended a seminar or read a book or watched a tape or something, and it's like, yeah if you're gonna do that with your business model, you're going to go bankrupt.
Ryan Chapman: Because not all business models lend themselves to that marketing model you were mentioning, and maybe we'll close at this point because you've invested a good amount of time with us. I appreciate that that you were talking to somebody that had a high amount of social clout. On social networks [00:37:00] and they, they were thinking that they wanted to do this product launch and it was immediately obvious to you that this would be a big failure for them?
Craig Jacobson: Well, because the asset that they had was a million Facebook likes and they, had 3000 people on their email list.
Ryan Chapman: that doesn't match up well does it?
Craig Jacobson:That meant that we were going to have to figure out how to turn Facebook likes into people visiting this a page that should be the entire focus. And then from there then you can figure out what you want the structure of the launch to be like. Or that recurring revenue because this is a recurring revenue business.
Ryan Chapman: That's very good. Well, hey, thanks so much. This has been really good. I know that's kind of a weird way, a place to stop, but I feel like we could go down for another couple of hours because there's so much in terms of deep stuff, there was something that you mentioned to me when we talked to earlier this week that if I'm trying to find. A piece of paper cause I wrote down a note, it was on sales and we didn't [00:38:00] even touch on.
Craig Jacobson: Oh Pete Fortunato his thing.
Ryan Chapman: Yeah. We'll have to do that another time.
Craig Jacobson: Absolute genius in what he does. He's a real estate investor, dude. You're just talking about using your mind rather than using the money to invest in real estate.
Ryan Chapman:Yeah. That was ingenious but, I think that deserves more than a few minutes to break down. So we'll save that for another time.
Craig Jacobson: I shouldn't want to introduce you to him and he should tell you about how he does it. I just thought, I always like hearing what he talks about, but how he frames his, value prop is amazing.
Ryan Chapman: Yeah. It was a really good example of the, that whole concept. We'll have to do it another time. Oh, this has been great. Thank you so much, Craig. No, you don't. You're not looking necessarily for a ton of customers because you already have a good portfolio, but if someone, would you even want someone to reach out to if they thought they could be a match?
Craig Jacobson:Yeah, I guess I do discovery with people all the [00:39:00] time. We don't see us all the time.
Ryan Chapman: Yeah. We are very discerning about who you will work with.
Craig Jacobson: Because I'm mostly making money, not from people, for selling them an agreed to menu of things that, that a checklist of things that we did. We did this, we did this, we did this.
Ryan Chapman: You're partnering up actually on results, right?
Craig Jacobson: So I've got to believe that this can really grow and it can really change the world and make the world a better place. And they're going to go through the learning process, which is a very, I, you know it, my core belief is that marketing at its core is really simple. It's just very hard to do.
Ryan Chapman: It just requires a lot of mental energy out of people that it can be difficult to commit to.
Craig Jacobson: And the itch requires a certain amount of patience and flexibility. Cause I, there's nothing that I've ever done that we drew up the plan and the plan worked the way we thought it was going to work. It's like an element works. Then you modify [00:40:00] that and then you add another element and like you're always in the middle of it.
Ryan Chapman: And you'll radically change people's business models.
Craig Jacobson: Well, if they're open to that, it isn't. It isn't my intention.Ryan Chapman: I mean, the intention is to help them make more money. Do a better job at serving their customer base. And sometimes that does require some pretty significant adjustments. Not everybody's open to that.
Craig Jacobson: Most people, most of these small entrepreneurs don't want to create a business that'll actually grow, that's investible, that they can invest in, that investors can invest in, and they don't think about their exit. They're all, they, all they're doing is they've got a job.
Ryan Chapman: Yeah. Well, you've given me a lot to think about as well. I appreciate that.
Craig Jacobson: My pleasure.
Ryan Chapman: Thanks again, Craig. Oh, no. That was the last thing I wanted to ask you is how could someone reach out if they did think that they might qualify?
Craig Jacobson: Openspacesmarketing.com.
Ryan Chapman: Okay.
Craig Jacobson: Open spaces marketing, or I guess you can [00:41:00] Google Craig Jacobson.
Ryan Chapman: See what you find. Huh?
Craig Jacobson: I'm the marketing Craig Jacobson. There's a Beverly Hills entertainment attorney. It also shows up. I'm not that.
Ryan Chapman:That's not you right now.
Craig Jacobson: No, never will be.
Ryan Chapman: Well, thanks again. This has been really good. I'm going to be re-listening to this one a couple of times.
Craig Jacobson: Oh, I would say the other, the other thing that I didn't touch on in business model, so I talked about, you know, a cost of acquiring the customer, initial transaction, lifetime value. And the other big question is, what's your exit. What's your end game? Is this a build it and sell it to some other company or to another individual? And then what is going to be the value, the basis of the valuation of them buying your business? What are they going to be buying? So should we should be building that as an asset from the beginning, not having that be a happy coincidence? Yeah. That's, those are questions that we just don't think about [00:42:00] enough as we get into business. As a small business owner, I guess a small business job owner... It's always good to be paid twice for the same work.
Ryan Chapman: Yeah, I would think so.
Craig Jacobson: While your operating a profitable business. You'd be paid again when somebody else buys it from you.
Ryan Chapman: Well, you know, I have to finish by saying this. Craig was the one that introduced me to texting, I was starting to dabble in it, but then you pushed me in a direction that really got me looking into it deeper. And, allowed us to really start what Fix Your Funnel has become so...
Craig Jacobson: Well I really appreciate you and appreciate the leadership that you take and being able to help and serve the small business owners to give them the information that they need to be able to, to be more successful and in building the tools that help them do that.
Ryan Chapman: It's tough enough to be in business. We got to help people so that they hopefully can avoid some of the more painful parts.
Craig Jacobson: Yup.