I’ve seen numerous business ventures fail when they build metaphorical “skyscrapers” on “land” or platforms they don’t own. This happens when a business relies too much on a platform they don’t control like Google or Facebook and then the platform changes something and it destroys that business. The problem with this is that the business has no control over the “land” or the platform on which they have built their business.
Jon Stoddard is a partner and Investor at Acquisition Partners. He was the CEO of Century Hearing Aids, which was the second-largest online seller of hearing aids. He worked in business development at Intuit, and he was the co-founder and VP of TurboSquid. He is also the author of Pitch Deck Secrets: The Underground Playbook for Attracting Investors to your Deal.
Recovering from Building a “Skyscraper” on “Land” We Don’t Own
Jon was working at Intuit when he realized he wanted to own his own business and not work for someone else. He knew one of the fastest ways to build a business and get revenue is by buying an existing business. So he bought a company that already had a website and a relationship with the manufacturers. Because the company’s advertising was making more money than it cost, his job to grow the business was pretty easy. All he had to do for a while was spend more money on Google Adwords. It was kind of like a money machine. If you put a dollar in and get two dollars out, then we just need to put more money into the money machine to grow our profits.
Unfortunately, Google decided to make major changes to the way they displayed their advertising. Because of Google’s shift to more mobile-focused advertising, they eliminated ads on the right side of the page. Unfortunately, those side ads were where Jon was seeing the most effective return on his advertising. This change substantially increased Jon’s advertising cost. Jon discovered that his business was too dependent on one source of leads, but he quickly had to figure out other sources of advertising to reduce his dependence on Google.
Jon couldn’t profitably advertise in Google’s new system, so he had to do something different. He looked at Facebook, but he couldn’t really advertise hearing aids on Facebook because it’s a medical device, and Facebook has some restrictions on this type of advertising. Instead, he tried inbound content marketing, answering every question related to hearing aid he could (how to read an audiogram, how to change your hearing aid battery, how to clean your hearing aid battery, etc.). Jon published 100 videos online answering these questions. He put the videos up on Facebook and whichever video got the most engagement he would just retarget to that video again and again.
He also sought testimonial videos from customers. He would often get them from these men that were 75 or 80 years old, sitting there stoically saying, “I love these hearing aids.” Those videos did really well and led to sales. So Jon’s advertising model changed completely after moving away from Google Adwords, and he grew the business to be the second-largest online seller of hearing aids.
Trying to Do Everything
When Jon went to sell the business, he was talking to a potential buyer who asked him how much time he spent on the business. Jon told him he spent 60-70 hours a week on it. He was taking all the orders from customers and doing too much.
The buyer was appalled. He told Jon that he should only be spending 15-30 hours a week; he should be optimizing his tools and outsourcing. That way someone will buy the business because they can easily add that to their other businesses because it is running automatically.
Jon took the next year, not only moving to the new funnel and advertising sources, but also automating all of his systems, outsourcing everything he could, and taking himself out of much of the day-to-day operations. He got to the point he didn’t have to do anything except just make sure things were running well. When he put the business up for sale again, Jon received offers in 24 hours and sold it in three days.
“Rule a kingdom as though you were cooking a small fish – don’t overdo it.”
-Lao Tzu, ancient Chinese philosopher, writer, and founder of philosophical Taoism
Competing with an Insurance Company
The margins for hearing aids were fantastic. Jon could buy a hearing aid for $135 and sell it for $795. The problem, and one of the reasons Jon wanted to sell the business, is there was no upsell, cross-sell, or down-sell. There was just one product.
One of Jon’s major competitors was an insurance company. He couldn’t compete with them because, even though their hearing aids were the same price, they could spend unlimited amounts of money to acquire a customer, and all they have to do is sell a small number of health insurance policies to make a lot more money than Jon. In other words, they could easily outspend Jon on the advertising because they could make a much higher profit per order.
Part of the reason that an insurance policy as a monetization element is so valuable because it’s recurring. Unlike the one-time sale of a hearing aid, the insurance policy is a product that delivers a monthly revenue stream. The valuations are so much more on recurring revenue models.
Jon hired a digital agency to help him redo his website or funnel. On his new funnel, Jon gave away a free lead magnet to provide value, establish a relationship, and capture leads of site visitors. The agency helped Jon implement the 7 laws of persuasion into Jon’s website, showed customer reviews and testimonials, and worked on the conversion funnel to increase his sales. As a result, over a period of four months conversions improved by 220%, revenue by 300%, and profits by 3000%.
“In many cases, the amount of money you make will be in direct proportion to the amount of goodwill you have in your market.”
-Frank Kern, internet marketer and copywriter
Jon feels that the vast majority of the initial communication between businesses and customers happens on Google, Facebook, Twitter and LinkedIn. So we have to send out goodwill on those platforms to build up trust in our brand. We have to create products and content that people care about to add value to our relationships. We must show people how we can help them, otherwise, we will lose their interest.
When we provide value it turns into a credibility spiral, building every time we deliver. To boost our credibility spirals, we can over-deliver on the value we add and nurture our relationships. Then we’ll be able to reach the point where they’re willing to pay for those high-ticket purchases.
Million Dollar Pitch Deck
When Jon was working at TurboSquid, they needed to raise money. Jon found that he really liked this. He enjoyed writing the marketing plan, looking at resources, what they need to do, and how they’re going to get it done.
He started offering this service with free training on pitch decks, going through all the necessary slides in a deck, what’s behind each, and why they need to be in the deck
Jon’s advice on pitch decks is to make sure we know our numbers, market, and how we’re going to succeed more than anyone else. He said if your pitch deck looks like a high school hypothesis, it will be easily dismissed. People would rather put money into a company that they know the facts about, so it can’t just be a high school hypothesis. It must be a proven business.
“You need to know your numbers, your market, and how you’re going to get there better than anyone else.”
People are often willing to pay a lot more for certainty. Let’s say there’s a 90% chance that the funnels someone creates for us are going to be successful. We may be willing to pay that person $200,000 to build that funnel. However, let’s say someone like Russell Brunson has a 100% certainty that the funnel he creates for us is going to make $20 million. We will easily pay $1 million dollars for that. So, what can we do to increase the certainty that our products and services will help our customers achieve their desired outcomes?
Thank you so much Jon for sharing your stories and knowledge with us today. Here are some of my key takeaways from this episode:
1. Don’t rely on only one source of advertising, especially when that is a source we can’t control.
2. We can recover from building skyscrapers on land we don’t own by diversifying our advertising sources and moving to platforms we can control, such as gathering email addresses of potential customers.
3. When running a business it is important to not try to do too much of the work ourselves. Creating a business that can run without us can give us a much better entrepreneurial lifestyle, and it can be much more attractive to potential buyers.
4. Just like Jon’s competitor added an upsell insurance policy, we should strive to add in other upsell products or services. We want to make more money per sale than any of our competitors. One of the best ways to achieve this is to implement recurring revenue streams.
5. When creating pitch decks it is important to know our numbers, market, and how we’re going to differentiate our business to succeed. Investors are more likely to invest in a proven business, not a hypothesis.
6. People are willing to pay a lot more for certainty.
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Connect with Jon
If you enjoyed this interview and want to connect with Jon or his company, you can find him on LinkedIn at https://www.linkedin.com/in/jonstoddard/ or visit his website at https://www.investorattractionsecrets.com/.
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