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How to acquire your first 1,000 customers (based on what worked for Uber, Airbnb, etc)

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Lessons on acquiring your first customers based on what worked for Uber, Airbnb, Etsy, Rebag and many others.

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How to acquire your first 1,000 customers (based on what worked for Uber, Airbnb, etc)

  1. 1. HOW TO ACQUIRE YOUR FIRST CUSTOMERS ONLINE Do’s and don'ts based on what worked for Uber, Airbnb and Etsy Thales S. Teixeira
  2. 2. Largest tech IPOs expected for 2019 H o w d i d t h e y start? H o w d i d t h e y a c q u i r e t h e i r 1 s t © Thales S. Teixeira
  3. 3. B u t 1 s t T H E S T O R Y O F H O W R E B A G A C Q U I R E D I T S F I R S T Rebag is a 3-year old start up that buys luxury 2nd hand bags and sells it online. The average price of a used handbag that it sells is $1,000 with the highest being $13,000 for an Hermes Birkin Togo bag. Co-founder Charles-Albert Gorra convinced investors that it needed to pay owners of these luxury bags upfront, instead of using a consignment model. He raised almost $5 million from venture capitalists and most of this money went into buying bags and acquiring customers online. As most digital startups do, he started with Google and Facebook. © Thales S. Teixeira
  4. 4. G O O G L E A N D F A C E B O O K H A V E B E C O M E T O O But his customer acquisition cost soon proved to be prohibitively expense, at north of $300 per each new customer. This is not uncommon. Here are the costs to acquire new customers (knows as CACs) for some businesses using Facebook, Google and similar online media at one point in time: Zulily +$70 Blue Apron +$94 Tower Paddleboards $200 Dropbox $310 Harvard Business School Executive Education $833 Typical range $200-$300 Since most online channels such as social media or display ads were too expensive, Gorra had to find another way to acquire customers. Paying hundreds of dollars for each new customer just was not going to work out…. ever. What did he do instead? CAC © Thales S. Teixeira
  5. 5. At the time, nobody else was purchasing used high-end bags to resell. Gorra had found a white space. He avoided direct competition and saved marketing dollars in the process. For his first customers, Gorra asked why they had done it. Customers told Charles what they wanted. They tried out his service. And the ones who liked it told others about it. The ones who did not, told him. The ones who liked it so much helped new shoppers to understand that selling was a good option and even helped out. Rebag’s early customers did so much more for the startup than Gorra ever imagined, not just buy. Source: https://www.resellerratings.com/store/Rebagg O F R E B A G © Thales S. Teixeira
  6. 6. Rebag’s most successful marketing campaign to date involved the idea of “teaching people that you can instantly monetize your closet.” Rebag built an in- house sales staff that approached influencers such as personal shoppers, wardrobe consultants and luxury store salespeople. Salespeople working in high-end stores would tell their clientele about selling their unwanted handbags on Rebag. They helped Gorra get many customers at once, instead of one by one. If these influencers signed up to become Rebag affiliates, they would receive a commission on any bag they helped bring in. “This affiliates program has been by far the cheapest channel to acquire customers,” Gorra said. He started an influencer program, but not via famous personalities or online influencers. Those people charge a lot of money for tapping into their social networks. O F R E B A G © Thales S. Teixeira
  7. 7. N O T T A K I N G T H E From this affiliates program, Rebag saw a huge inflow of new customers at low cost. Unfortunately, this customer acquisition channel was not scalable. Gorra could not just double the money and effort and get double the amount of new customers. In order to scale he needed to move to other channels, like direct- response TV ads, social media and then mass media. To get scale, Gorra realized he needed to give up low cost. The evolution of customer acquisition requires giving up low cost for scale on an as- needed basis. As of this writing, Rebag has received $28 million in venture funding, with its latest series B round bringing in $15.5 million. Not bad for a three-year-old startup. Lowcost Scalable Not available Search engines Influencer/ Affiliates Direct response Social Media Mass Media © Thales S. Teixeira
  8. 8. WHAT DOES As a startup, trying to acquire customers on Google or Facebook often does not work. The reason is, its (a) too crowded, (b) expensive and (c) uncertain. Multiply these typical conversion rates and you get 0.01125%. Which means that for every 10,000 consumer who look at your online ad, you get 1.125 new paying customers at an average cost of $200 each. Get user attention User clicks $3 / website visit User stays in your site $15 / browser User goes to checkout $80 / basket User pays $160 / purchase ~ 1.5% click ~ 70% of visitors bounce ~ 25% consider ~ 25% checkout ~ 50% abandon cart ~ 20% return items User considers product $60 / consideration User keeps product $200 / acquired customer Its a large numbers and deep pockets game! Here is an example typical of the customer funnel. © Thales S. Teixeira
  9. 9. C U S T O M E R S were used by Uber, Airbnb and Etsy to acquire their first 5 STEPS © Thales S. Teixeira
  10. 10. STEP A C Q U I R E C U S T O M E R S © Thales S. Teixeira
  11. 11. Acquiring one customer at a time is too expensive and too slow. Instead, use other people’s networks (OPNs) to get access to a large group of customers at once. It can be online: social media user groups, Facebook groups, online communities, online marketplaces. Or it can be offline networks: Event attendees, schools, churches, mall visitors. Think of which OPNs you can tap Airbnb did this by tapping Craigslist users Uber did this by tapping friends of first time riders Etsy did this by tapping the customers of established crafts makers. © Thales S. Teixeira
  12. 12. STEP A V O I D D I R E C T © Thales S. Teixeira
  13. 13. If you advertise your product or service in mass media, online or offline, guess what? Your competitors will be among the first ones to see your ads. And they will react quickly by launching their own ‘counter-strike’ ads. Instead, go for the marginalized or neglected customers of established competitors. Airbnb did this by focusing early on in major conferences that tended to cause hotels to be in overcapacity. Uber did this by launching services in cities and at times where demand for taxi outstripped supply. Think of at the end of concerts in San Francisco, Friday night during winter time in large airports, rainy days and near large sports stadiums in Chicago. Etsy did this by tapping the customers that did not like or were unsuccessful at selling their products on eBay. Stay under the radar and capture customers at the fringes. You'll grow fast and by the time the taxis, Hilton’s and eBay’s of the world realize they are losing customers to you, it will be too late. © Thales S. Teixeira
  14. 14. STEP DO THE NECESSARY OFFLINE © Thales S. Teixeira
  15. 15. Airbnb founders did this by going to people’s homes and taking professional quality pictures. Uber employees did this by going from black car co. to co. to sign up drivers. Etsy managers did this by visiting craft fairs across the US to sign up makers. Forget about scalability of customers acquisition tactics. Do things that work, and don’t scale. These first customers will in turn help you get more. If you don’t acquire enough early customers to begin with, there is nothing to scale later on. Online entrepreneurs think they can manage a business from a computer. All problems can be solved from a distance, including customer acquisition. They think online tools are scalable whereas offline activities are not. So they do only things that scale. In reality, online customer acquisition is something that businesses farther along can employ. But in the early days, offline activation is much more important. © Thales S. Teixeira
  16. 16. STEP HAVE YOUR EARLY CUSTOMERS F O R Y O U © Thales S. Teixeira
  17. 17. As a nascent business, you need to research and develop your new product. You need to hire marketers to create content and bring in new customers. Some prospective customers will have questions and concerns before or after a purchase. But you probably don’t have the ability to hire expert employees in R&D, marketing, and sales support. It turns out, your first customers can do all these roles for you. Your first customers are a blessing. They paid for something you are desperately trying to sell. But could they do more? © Thales S. Teixeira
  18. 18. Airbnb asked its first guests to tell them about their experiences and what needs to be improved (R&D). Then they were asked to comment on early prototypes of improvements. Uber routinely asked first riders to tell others about their experiences both online and offline word-of- mouth (Marketing). Ask yourself this: what can my early customers do for me on my behalf? Obviously, nobody does anything for free. They will need to be motivated. It turns out, money (discounts) is only one motivator. VIP status on the site, notoriety in message boards, invitation to special events and other non-monetary perks work even better. Etsy had its most experienced and early sellers on the platform field and answer questions on the site that new sellers asked (customer service). © Thales S. Teixeira
  19. 19. STEP THROUGH YOUR CUSTOMERS’ EYES © Thales S. Teixeira
  20. 20. In the beginning of a startup, a sale to a new customer is an aberration of sorts. If you emotionally distance yourself from the business, you will realize that. Why did the customer buy? Why did they buy from you and not one of the established businesses? What prompted them? How did they find you? Why did they take such a large risk with an unknown, unproven, inexperienced company? Treat your first sales as a puzzle to be solved. Call them up. Ask them to explain. Be intrinsically curious. They will reveal drivers of their purchase that you can exploit for acquiring the next 100 customers. The only way to see things through your customer’s eyes is to ask them how they see things. © Thales S. Teixeira
  21. 21. ONLINE -OF F LINE BU S INES S ES ? W H A T A R E Most likely your business is (or should be) a hybrid one too! P U R E O F F L I N E B U S I N E S S P U R E O N L I N E B U S I N E S S All others These are three fast-growing online-offline hybrid businesses © Thales S. Teixeira
  22. 22. For early stage hybrid online- offline startups, the offline portion is much more important than the online one. That was the case for Uber and how it attracted drivers, for Airbnb in getting owners of homes to create great postings and for Etsy to bring in the best crafts makers. In the early days, tech startups resemble icebergs, you see the initial technology and assume that is the majority of the business, but in reality, most of it is underwater offline operations. Overtime, the importance of the online technology dominates the offline operations. But technology alone won’t guarantee that startups survive in their early days. Importance for survival Early stage Late stage O N L I N E T E C H O F F L I N E O P S W H Y W O R K S © Thales S. Teixeira
  23. 23. N O M A T T E R W H A T Y O U D E C I D E T O D O , look to what the Uber’s, Airbnb’s and Etsy’s of the world are doing lately for inspiration for your nascent business. After becoming huge, they have switched tactics, in part because they need to. Now they use online mass acquisition tools, they mostly do things that scale, they fully confront competition, and they invest heavily in new technologies, all things they avoided in their early days. As a small business or startup, you are akin to a baby taking their first steps. Does it make sense to look at Usain Bolt for inspiration to learn how to walk? No. So don’t look at what Airbnb, Etsy and Uber have been doing lately. Instead, more instructive is to see what they did that worked when they were in their early age. © Thales S. Teixeira
  24. 24. GOING FROM 1,000 TO THE FIRST When your business passes those first critical steps of acquiring the first customers, you too will have to evolve and abandon the strategies that worked in the first place. You will need to shift away from what worked. That will be hard. It will require courage to make a change in order to reach the next milestone of 1 million customers. Sure it's risky, but without a big leap, there won’t be a next level of excellence achieved. Few will reach this pivotal moment with their business. So if you happen to get there, a few words of advice and encouragement from those who got there: Go back to the basics [of business]. Make sure to distill the principles that still work in an expansion playbook. Each team has a vision for their project, a vision of a fully-functioning platform; few think about Day 1. Always keep testing. “ ” ” ” ” C U S T O M E R S © Thales S. Teixeira
  25. 25. H O W R I S K Alex Honnold is a free solo climber. He ascends rock walls alone and without any protective gear such as ropes and hooks. In 2017, he broke the world record by climbing Yosemite’s 4,000 ft El Capitan is less than 4 hours without any protection. When I met Alex for a demo of his technique, I learned a valuable lesson in risk-taking. He dispelled the myth that, in solo rock climbing, the farther you climb off the ground, the larger the risk. After about 30 feet, if you fall you die. So risk does not increase over time as one climbs. © Thales S. Teixeira
  26. 26. H O W R I S K Rather, risk is fairly constant most of time. And it dramatically increases as you switch from one climbing technique or “hold” (say from flagging to slapping to chimney climbing) to another. According to Alex, that is when risk increases and mistakes are made. In starting a business, decades of research have shown something similar. It is during transition periods that risk (of death) spikes. Do yourself a favor when this time comes: Acknowledge the risk increase; Pack and plan; Hire experienced people that can help during these unique moments. Differently from Alex, you do not need to do it alone. 1 2 3 © Thales S. Teixeira
  27. 27. A D D R E S S I N G O F V A L U E There are two reasons that explain most of startup failure. The first reason, unsurprisingly, is when startups don’t acquire enough customers to sustain their business. The five steps presented in the beginning help mitigate this risk. But the second reason for failure, a less obvious risk, is when startups create value for their customers but fail to capture a large enough portion of it. The difference between value creation and value captures is what I have termed leakage. And leakage of value is also responsible for many startups dying after the first 3 years of life. Take a look at Jawbone, Quixey, Juicero and Yik Yak. These are just four examples of tech startups that died recently, despite having succeeded in acquiring many customers. 2013-2017 $459M valuation $121M VC raised San Francisco Created a high- end juicer © Thales S. Teixeira
  28. 28. O F D I G I T A L D I S R U P T I O N I S U P O N U S In the business world, a new and uncharted transition point is upon us. There have been two great waves of digital disruption since the Internet popularized in 1994. The first is known as unbundling, the second has been termed disintermediation. is the 3rd major wave of digital business model innovation (i.e., digital disruption). Decoupling is the breaking of the links between customer activities, by a digital player, that have traditionally been provided together. The game is fundamentally changing in most markets. Today’s most dangerous disruptors are not just stealing customers, but rather stealing customer activities from incumbents. Decoupling enables that disruptive attack. D E C O U P L I N G © Thales S. Teixeira
  29. 29. In the past few years, this wave has been covering various industries in most countries. Among the most notable decouplers are: O F D I G I T A L D I S R U P T I O N I S U P O N U S © Thales S. Teixeira
  30. 30. To learn more strategies about how to start and scale a disruptive business, including how to acquire customers, be sure to read my book. There you will also learn about Decoupling. Unlocking The Customer Value Chain (Currency/Penguin Random House 2019) is the result of eight years of research into what causes disruptive startups to quickly steal sizable amounts of market share from large established companies is industries ranging from retail, healthcare, transportation, telecom, media, consumer goods and banking. The book also explains how to successfully respond to this new wave of digital disruption that the authors have termed ‘DECOUPLING.’ Lastly, the book provides a step-by-step guide on how to start, grow and avoid the downfall of disruptive businesses in any industry. Other topics include: Calculating disruptive forces & costs Assessing risk of disruption to incumbents Competing/co-existing with Amazon Rebalancing business models to avoid leakage Starting and growing decoupling-based businesses Order the book here or on Amazon here. © Thales S. Teixeira
  31. 31. is the Lumry Family Associate Professor at Harvard Business School. There he has taught MBA, doctoral and executive-level courses in Marketing Models, Digital Marketing and Ecommerce. His two primary domains of research constitute Digital Disruption and The Economics of Attention. He is the author of dozens of articles published in trade press outlets such as The Harvard Business Review, The McKinsey Quarterly, Think with Google, and in academic journals such as Marketing Science, JMR, JM, and JAR. His research and opinions have been routinely featured in The NY Times, The Financial Times, ABC Nightly News, NBC News, NPR, Forbes, Quartz, The New Yorker and The Guardian. He has also been an expert reviewer for the US Food and Drug Administration under President Barack Obama. And he is one of the current judges of CNBC’s Disruptor 50 most innovative startups. He has consulted or advised top executives of over 15 of the Fortune 100 companies. P R O F . T H A L E S T E I X E I R A