In Module 1, Parts I and II, I defined a broad, inclusive, accurate view of current reality as it relates to digital marketing. Understanding and embracing what’s true is a critical first step.
Now, however, we need to know how to take action to work with, rather than against, that understanding of reality.
To do that, I have identified five principles to guide our thinking and our behavior.
Tesla (and SpaceX) founder Elon Musk and Bridgewater Associates hedge fund co-Chief Investment Officer Ray Dalio have recently popularized thinking from the perspective of principles.
“First principles is kind of a physics way of looking at the world, and what that really means is, you … boil things down to the most fundamental truths and say, ‘okay, what are we sure is true?’ … and then reason up from there.” — Elon Musk
“Principles are fundamental truths that serve as the foundations for behavior that gets you what you want out of life.” — Ray Dalio
However, just because it’s recently popular doesn’t mean thinking in principles is new. Nearly 2,400 years ago Aristotle referred to principles as “…the first basis from which a thing is known” in Metaphysics.
The power of thinking from first principles has been a staple of Western thought for millennia.
In my experience, thinking from the perspective of principles has three significant benefits.
First, it moves our decision-making as far upstream as possible. Dan Heath shares an example of why this is important in his book Upstream: The Quest to Solve Problems Before They Happen.
Upstream opens with a public health parable about two people rushing to save a child who is drowning in a stream. Just as one person pulls that child to safety, another child appears. And the moment that second child is pulled to safety, another appears. This continues for a while as more children appear until the rescuers are nearly exhausted.
“Suddenly, you see your friend wading out of the water, seeming to leave you alone. ‘Where are you going?’ You demand. Your friend answers, ‘I’m going upstream to tackle the guy who’s throwing all these kids in the water.’”
Second, principles represent one decision that eliminates the need for dozens, perhaps hundreds, of other decisions.
Business researcher and author Jim Collins credits Peter Drucker with this idea. “Don’t make a hundred decisions when one will do … Peter believed that you tend to think that you’re making a lot of different decisions. But then, actually, if you kind of strip it away, you can begin to realize that a whole lot of decisions that look like different decisions are really part of the same category of a decision” Collins told Tim Ferriss during a 2018 interview (that I highly recommend).
Third, thinking from the perspective of principles allows us to embrace Albert Einstein’s maxim that “Everything should be made as simple as possible, but not simpler.”
We’re not going to consult a 10-page checklist every time we want to take action. That’s too complex, and that checklist would quickly become a barrier to action. However, we can understand and internalize five principles, and then use those regularly to inform our decision-making until thinking from the perspective of those principles becomes second-nature.
The following five principles will guide our thinking and behavior through the remainder of The Traffic Engine (and beyond). They represent my best ideas for an irreducible set of concepts that focus our attention on what matters most when we purchase attention with the intention of monetizing that attention over time.
Principle #1 — Give the Platforms’ Users What They Want
In the (recent) past I’ve suggested that giving advertising platforms what they want is a key ingredient for success on those platforms. Recently, however, I’ve realized that I need to move one step further upstream for maximum leverage.
Instead of focusing on what Facebook and Google wants for their users, we need to focus on what the users of those platforms want for themselves when they’re using those platforms. That is a critical distinction that places empathy with the prospect at the center of our decision-making.
In simple terms, Google’s users want answers to questions. Those answers can be organized into two broad categories — solutions to problems and potential opportunities.
Google’s users think in terms of "what is...", "how do I...", "what's the best way to..."
Google’s users do not want artificial barriers, like opt-in requirements, between their search query and their desired outcome. There is an immediacy to search, and an expectation that results will be transparent, authoritative, and credible.
That does not mean we have to give everything away, but we do need to understand the importance and value of minimizing friction between a search prospect and the information she is looking for before she can take the next step.
Facebook’s users primarily want entertainment, distraction, and the occasional opportunity that fits into their current view of the world. We can modify entertainment (slightly) so that the emphasis is on education and information, but we can’t lose sight of the fact that Facebook’s audience, in general, expects their newsfeed experience to be personal, social, entertaining space.
It’s also important to understand that Facebook is a belief-reinforcing environment. It is not a neutral content aggregator. Instead, Facebook shows you more of what you already engage with, more of what you already like, and more of what you already believe.
To get the most out of Facebook’s advertising engine, we need to to look at prospects through a lens that Seth Godin has suggested as a way to think about effective marketing. Paraphrased, Seth has said that, if we’re going to open a nudist colony, we should sell to people who are already nudists, not try to convince others to become nudists.
This is a critical concept to understand on Facebook. Audiences are aggregated around existing beliefs and demonstrated desires, and Facebook’s advertising algorithm optimizes based on previously exhibited behaviors.
We can be most effective when we channel those beliefs and desires in the direction of a product or service we offer by showing our messages to those people who have demonstrated, with their interests and behavior, that they will take the action required to become a prospect and a customer.
We may wish that Facebook behaved differently. But wishing Facebook were different does not make that wish true — it just means it’s harder to use the platform effectively.
As Buckminster Fuller observed, “Don’t fight forces. Use them.”
And, if we’re staying true to our principle of giving platforms’ users what they want, the reality is that most people want evidence that confirms their deeply-held beliefs are correct, and reinforces the value and importance of those interests.
Focusing on the end users’ needs and desires will be a theme throughout The Traffic Engine. It is the first of the first principles of any successful business.
Principle #2 — Avoid Big Mistakes
The power of this idea is very easy to dismiss and, in my experience, that would be a terrible mistake. It’s so easy to nod our heads up and down and think we understand, but we need to dig deeper to really appreciate how powerful this principle is.
Charlie Munger, Warren Buffet’s business and thought partner, summarizes this idea with the phrase “all I want to know is where I’m going to die so I never go there.”
A weight loss example I like to use makes the point well. (Credit where credit is due — my memory is hazy but I think I first heard a variation of this idea from master strength coach Geoff Neupert).
Imagine you need to lose 20lbs to feel and perform your best. You’ve decided that exercise is the best way to reach your goal, and during a typical day you spend an hour practicing yoga, 30 minutes taking your dog for a brisk walk, and every afternoon you attend a high-intensity CrossFit class.
So far, so good, right?
Now imagine that after you complete that CrossFit class, you walk across the street to the local bakery, order a cup of coffee, and eat a dozen donuts.
No matter how much exercise you do, you simply can’t out-exercise that dozen donuts. That single mistake eliminates the possibility of losing 20lbs.
Or, to be fair, maybe it’s not a dozen donuts. Not all mistakes are that obvious. Instead, perhaps it’s a few sugary sports drinks, dessert more frequently (you’ve earned it, right?), an occasional ‘energy bar’ after a workout (and maybe one before, just in case — those CrossFit workouts are brutal).
None of those mistakes are as dramatic as the dozen donuts, but each one compounds, moving you away from what you’ve defined as success.
When we transition into implementation (modules 3-7), identifying and knowing how to avoid costly mistakes will be an integral part of our thinking. However, that doesn’t mean we’re going to have a 100-item checklist — that’s unrealistic (and unnecessary).
Instead, we’re going to identify the few things that can significantly undermine your opportunities for success on each platform and know how to avoid them entirely. In Charlie Munger’s words: we’re going to know where we could die and make sure we never go there.
Each platform has its own potential mistakes to avoid. One example, common to both, will help you understand this idea in the context of paid traffic.
In my experience, the majority of retargeting ad spend is wasted which is a costly mistake that is easily avoided by adding a qualitative, time on site filter.
For example, instead of retargeting everyone who saw an offer and didn’t purchase, retarget everyone who saw an offer, didn’t purchase, and stayed on the sales page longer than 10 seconds. I have seen that simple change repeatedly recapture 50% or more of retargeting ad spend with no negative impact on overall results.
People vote with their behavior. And a lot of people will click on an ad, realize immediately they’re not interested, and then they’re gone, never to be seen again. Don’t chase them. Instead, focus on the people who have told you with their behavior they are interested.
As we transition into implementation, we’ll focus our attention first on a few big mistakes to avoid which will ensure we don’t accidentally sabotage success before it has a chance to happen.
Principle # 3 — Focus Your Time, Energy, and Dollars Disproportionately on What Matters Most and Performs Best
Bruce Lee is famous for saying that he didn’t fear the man who practiced 10,000 kicks once, but he did fear the man who practiced one kick 10,000 times.
A significant challenge with digital marketing and paid traffic is that there is so much we could do — our list of ‘10,000 kicks’ is seemingly endless. However, ‘what could we do?’ is the wrong question because it assumes that time, energy, and dollars are infinite.
In that context, we could do anything.
However, when time, energy, and dollars are finite (meaning always), the right question to ask is what should we do?
This is something I have been pondering for many years as I’ve watched my clients react to unsolicited proposals from other agencies and service providers.
I’ve noticed that the format for those proposals is always the same. Page after page of all the things the client wasn’t doing but could do, and the message was clear — look at all the opportunity you’re missing!
But, invariably, when we analyzed the clients’ available resources (staff time, agency time, and ad dollars), it became obvious quickly that those weren’t actually opportunities, they were distractions.
The opportunity cost of doing low-value work at the expense of high-value work is a terrible price to pay. When our resources are finite, we have to think in terms of tradeoffs, not absolutes. The best trades to make are exchanging low-value activities and initiatives for high-value activities and initiatives, continuously upgrading our results along the way.
To get the most out of principle #3 we will learn to think like investors, and make decisions about how we invest our time, our energy, and our ad dollars based on where each is likely to generate the highest return relative to our primary goal.
A final thought about principle #3 — we are going to focus on doing the obvious exceptionally well, and not squander our resources chasing the esoteric.
I’ve seen so many businesses flounder because of distractions from bright and shiny, latest and greatest tricks, often from the most recent conference or newest product launch, rather than focusing on the few core performance drivers that are far more likely to produce the results we want.
Focusing relentlessly on what matters most will be the organizing theme for the modules ahead.
Principle #4 — Know Exactly What You’re Doing and How to Measure It Accurately
To do our work well we need to know the language, know the relationships, know the metrics, and know how to calculate those metrics without relying on complicated dashboards.
Knowing the language means understanding the terminology of digital marketing. Every discipline has its own language. For example, if you’re a no-limit hold ’em poker player and I tell you that I lost my entire stack after I flopped set over set and a donkey caught a one-outer, that phrase is meaningful to you. To others, it’s gibberish.
Front end, back end, offer, traffic, conversion, lead, opt-in, squeeze page, straight to offer, CPL, CPM, CPC, CPA, AOV, LTV, ROAS — these are all parts of the language required to understand the work we’re doing.
Facebook and Google have their own languages as well. We need to understand those languages, deeply, and to do that we will immerse ourselves in the terminology until it’s second nature.
Start by making your own glossary of terms. Don’t just copy and paste from this (and other) modules. Write down the terms, explain them in your own words, create your own examples. If you can’t explain the terms in your own words, study them until you can. Knowing the language of this discipline is that important.
Knowing relationships is about understanding the factors that relate to one another and how those relationships affect each other. For example, if we don’t know the relationships between cost-per-acquisition (CPA) and average order value (AOV), we might lower the barrier for someone to become a customer thinking lower CPA is always better, when in fact increasing CPA marginally often can increase AOV exponentially.
These nuances matter. Seeing and understanding how the elements fit together is critical knowledge. Imagine, for example, that you decide to put a 10-question questionnaire or application before someone has an opportunity to become a lead. What would you expect to happen?
First, you would expect lead volume to go down. Which probably would make lead cost go way up. Why would you do that? Because you’re also expecting that lead quality will go up significantly as well, which means those expensive leads are more valuable. Those are the types of relationships you’ll become accustomed to imagining (and then testing).
I mentioned the importance of knowing metrics in Module 0, and I want to reiterate that here. You absolutely have to know how much it costs to acquire a customer and how much those customers are worth to you over time.
Direct response models rely primarily on cost per acquisition, average order value, and lifetime value.
E-commerce models rely primarily on return on ad spend (ROAS) and lifetime value.
Seeing those numbers calculated on a dashboard is not enough. You need to know how to calculate those numbers on the fly, in your head, backwards and forwards.
At a minimum, you need to know how much you can afford to spend to acquire a customer, how much money you’re likely to make with a customer on the first sale, and how much that customer is likely to buy over a specific period of time that is meaningful to your business.
I cannot stress enough how important and powerful this knowledge and understanding is to your eventual success.
Principle #5 — Optimize Your Entire Business System for Happy, Long-Term, Repeat Customers
When we accept that our businesses are systems, and therefore subject to the insights of systems theory, we begin to realize the importance of several critical decisions.
First, we have to decide with precision what we’re optimizing for, which I discussed at length in Module 1, Part II. We need to know with precision what faster means for our specific boat.
Choosing to optimize our businesses for happy, long-term, repeat customers is a way to simplify and guide our decision-making upstream to produce far better results downstream.
This single decision gives us a point of reference that we can use as our North Star. It is one decision that eliminates the need for hundreds of other decisions.
Every offer, ever message, every ad, every initiative can be held to a simple standard: is what I am considering likely to contribute to the creation or retention of a happy, long-term, repeat customer?
Yes or no.
Decision-making like this doesn’t have to be rocket science. We generally know, intuitively, if our decisions are focused within (on our own needs and desires), or without (towards the needs and desires of our audience).
Take the audience’s perspective and ask — repeatedly:
- How will this help the people I have decided to serve?
- Where is the value (for them)?
- What, specifically is that value?
- What can she do with what I’ve shared to make her life better?
At every opportunity we’re re-orienting to the single most important asset any business can have — happy customers (who tell others how happy they are), who remain loyal for long periods of time and continue to buy more whenever the opportunity is right for them.
Remember, it costs nothing to acquire a customer you already have.
This does not mean that we are selfless martyrs. We are in business to make a profit (if we’re not making a profit we don’t have a business, we have an expensive hobby). However, even from purely economically-motivated self-interest, optimizing for happy customers is a better choice than any other alternative because it keeps our focus on the largest potential profit center of our business (i.e., the 85% of customers who do not buy in the first 90 days).
Second, we need to subordinate all of our decisions to achieving the system optimum (as we have defined it). This is a central insight of Eli Goldratt’s Theory of Constraints (and a foundational idea of systems theory).
The individual parts of a system do not produce the results of that system. Instead, results emerge from the interplay of the system itself.
Think about a car. What makes a car go from point A to point B? Is it the engine? The drivetrain? The fuel system? Each of those contribute, but none of them can go from point A to point B on its own. When those parts are arranged into a system a set of abilities arise that are not present in any of the individual parts.
The same is true for our businesses. There are lots of parts, and those parts have a variety of roles. But those roles are meaningless on their own — what matters is that they combine and produce the goal that we care about within the context of the whole.
This is one of the most challenging concepts to understand in practice because it’s inherently counter-intuitive.
The solution is to look at initiatives and data from the context of what we want our businesses to achieve overall, not on what those initiatives accomplish individually.
Let’s consider an example. Imagine you have an SOI-inspired lead generation funnel that has three pages of content that leads to an opt-in to continue the journey with additional content delivered by email. There’s no lead magnet, no ‘ethical bribe’, no incentive to join other than to continue the journey that the MPPS started.
Next, those leads receive one, value-rich email per day for seven days, each one reinforcing a series of beliefs that must be accepted by the prospect before s/he is willing to buy a $395 offer revealed on day seven.
Let’s assume that our opt-in rate is 20% (i.e., 20% of the people who see page one become a lead), and that our conversion rate for that 20% also is 20% (i.e., 20% of the leads purchase the offer on day seven).
That means for every hundred people who see the MPPS we generate four sales ($1,580).
So far, so good.
Now imagine someone who specializes in lead generation comes along and sees what we’re doing. They’re mortified because we’re “doing it all wrong”. Three pages of content before the opt-in? Terrible idea. No free report lead magnet + 4-part video series + bonuses in exchange for the email address? Amateur-hour. They could do so much better…ˆ
Assume that we decide they’re right — we have been doing it all wrong, and we focus myopically on making our lead generation so much better with all of the above-named best practices.
What happens? In my experience, lead volume goes up (and the lead generation gurus pat themselves on the back and whisper “I told you so”), and lead quality falls off a cliff. Offer conversion rates plummet because lead quality is so low, and refund rates skyrocket.
What happened?
We focused on improving a part of the system without considering how that part of the system affected the whole? The goal of the system is happy customers, not lots of leads (an idea that seems to be lost on a shocking number of business owners who brag about their enormous email lists).
Or, we tried to do the wrong thing right not taking into consideration the larger context in which it exists. And, in the words of systems theorist Dr. Russell Ackoff, “The righter you do the wrong thing the wronger you become.”
We simply cannot isolate the parts of our businesses and optimize those parts in isolation, hoping that when we put them back together the whole system will have improved. Every endeavor must be in service to the overall goal of the system.
One last recent example to demonstrate this is not a hypothetical exercise.
The first cohort for The Traffic Engine closed on April 7, 2020. André and I sent the last email for that promotion actively discouraging anyone who was still on the fence from subscribing. We also sent a long, curated list of many of my favorite resources as an alternative to enrolling (all of which were free except a short list of books.)
Looked through the lens of short-term revenue and maximizing customers, that decision was foolish. The data (and feedback) clearly showed that we depressed conversion rates for the last day of the promotion, which often is the day with the most sales.
What sane person would do that?
But, let’s take a step back and re-orient to what we were optimizing for.
Happy, long-term, repeat customers. We were not trying to maximize short-term revenue from a single promotion. The Traffic Engine will be around (and updated) for years. It is part of a very long endeavor that André (and I) started individually a long, long time ago, and one we both intend to continue for a long time to come.
Knowing that, it was easy to say no to customers right now when it would be better to wait until the time is right for them. Economics, alone, suggest that our approach was the better long-term option. (And, as I’m sure many of you have intuited already, economics never even factored into that decision-making. We both knew it was the right thing to do because that’s how we both want to show up in the world.)
Systems-level decision-making is not easy and I will not pretend that it is. The solutions are not obvious, and it’s easy to be led astray thinking you’re doing the right thing, only to find out later that you did the wrong thing right (and we know where that leads…)
During the next six weeks we’re going to keep practicing this skill of re-orienting to the system optimum and evaluating our decisions from that perspective. Like any skill you practice, it will be better over time.