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Today’s interview is a continuation of my conversation with David Hauser, co-founder of Grasshopper, a phone system for entrepreneurs. David has also co-founded a number of other startups including Chargify, Deck Foundry, and PopSurvey. Last week, we talked about controversial marketing stunts, and this week, we talked about his views on using paid marketing.

The Interview

Tell us how did you get your first customers?

Our initial customers came from traditional paid advertising, and I think a lot of startups forget that that’s a great place start before you start scaling. Pay-per-click, for example, is an easy way to test small amounts of paid advertising. We’ve used all sorts of paid advertising.

In addition to pay-per-click, display ads, banner ads, radio, television, email, and physical mail — these are all different channels that we’ve tested to find out which ones are cost effective for us. For example, radio’s worked well in certain markets in certain ways. Television has worked well in certain markets in certain ways. We’ve found pockets of customers, and this is how we do a lot of our marketing.

What do you think are some common mistakes entrepreneurs make when trying to do marketing?

I think a common mistake people make is, first of all, not knowing their market. We made this mistake when we started. In the beginning, we marketed to entrepreneurs, to small businesses, to home-based businesses. Obviously, you’ve got to test some things out to figure out your market.

But, we spent too long doing it. We didn’t focus quickly enough. Once we started focusing on entrepreneurs, our results were much better. I think people tend to go too broad and *stay* broad for too long, because they don’t understand their market.

I think the other mistake a lot of new entrepreneurs make is they always focus on free marketing and blogging. You should obviously do these things — and we do them too — but you have to combine it with paid advertising. A lot of people just ignore that, because there’s all this buzz about super successful companies that never spent money on advertising.

What are some the problems you’ve run into with paid marketing? And how have you overcome these problems?

Yeah, so take retargeting, for example. People talk about it a lot — it’s been pretty popular in the last year or two years. We’ve tested all sorts of retargeting. But, they usually try to package it with some other display advertising. At the end of the day, their metrics say they were super successful.

But, when started to dig into the data, we found that it was an expensive channel that increased our total cost of acquisition. And so after we tested it, we’ve cut back on those budgets when we looked at our actual data.

How do you know what advertising works and what doesn’t? How do you test?

We test many pages and home pages and every step of the sign-up process. We test hundreds of different variations from pricing to words. We try different phrases like comparing “money back guarantee” with “free trial.” Whichever ones turn out to be the best we’ve kept, and over the years, we’ve tested thousands of different things.

What’s something you’ve found surprising as you were testing these different iterations?

Pricing, price elasticity, and what people are willing to actually pay is something you definitely won’t learn in talking with customers or potential customers in interviews.

You have to try different amounts in the real world where someone’s going to give you a credit card and pay. So, we’ve definitely learned some interesting stuff around pricing, and at some points, we’ve raised our pricing, and at some points we lowered it based on our tests.

Illustration by Orissa Jenkins