Customer Acquisition For The Newbie Entrepreneur

Customer Acquisition and Startup Failures

This is a post for newbie startup founders, and fresh entrepreneurs willing to land their very first set of customers. Often startups fail because of lack of customers (about 80% of the time). There are some obvious reasons for that:

  1. Founders are too technology/product oriented, they forget to connect with potential customers.
  2. The product doesn’t solve a real pain.
  3. The value proposition is too confusing and difficult to communicate

There maybe other reasons too, but I found those to be the most common occurring ones.

The Customer Acquisition Guide

You’re probably reading here to know a practical tip on customer acquisition, well, ask yourself these questions:

  1. How many potential users of my product did I talk to before actually building the product?
  2. Who tried my prototype?
  3. How many people praised my prototype? How many neglected it? How many said it’s awful?

The Steps to Customer Acquisition

  1. Read the questions again, and literally take a piece of paper (or an Excel sheet if you’re fancy!) and write down the names of people for each question.
  2. Now scratch the names of your family and friends who praise you no matter what you do, unless you strictly know they are pragmatic and objective people.
  3. Put an asterisk next to names who neglected your product, or said it’s awful.
  4. Now look at the list again, do anyone of those people made an investment in your product? An investment could be devoting their required resources to reach the goal you had for your product. For example, if you have an e-commerce app, the goal is to buy a product through your app, that’s an investment. For Instagram, an investment is to make an account and follow a few people and like their photos.
  5. If not, then you need to get back to your team, sketch a fresh new BMC, and start figuring out new value propositions by reshaping the problem, and the solution.
  6. After you’ve done that, get back to the list of people you made earlier, propose the new prototype with new value proposition, and record their feedback.
  7. If there is an investment, then you’ve nailed it. If not, redo the steps from all over.

Tips on Customer Acquisition

  1. Try to have a large number of people in step 1, since you’ll be filtering out the ones not needed.
  2. There is no magic number of people for your customer acquisition list.
  3. It’s not necessary to talk to your potential customers face-to-face, although it’s the most useful. You can use other channels such as Twitter, or plain-old Email.
  4. Try to expand the radius of your potential people, don’t think close friends and family. Tap into your college network, your past job, friends of friends, etc.
  5. It’s always better to show a product/prototype to your potential customers, than to just convey words and/or pictures. This way, you can immediately see if they’ll make an investment in your product and basically turn them into customers, rather than just get a verbal commitment that they will use your product!

The Conclusion on Basic Customer Acquisition

The idea here is to create a list of potential people around you, that you think may find your product attractive, and refine this list. Once you refine it, see if they have already generated revenue for you*, then they are already your first set of customers! If not, then the problem is either with your value proposition, your solution, or your implementation (the product). Go back to your team, refine those three things, and approach your potential customers again and see if they’ll do an investment this time. Redo until you hit the jack pot.

Also, don’t be shy to ask, if you’re too lazy to ask again or afraid you’re asking too much, then probably you need to rethink why you chose entrepreneurship!

 

 

* Or made a considerable time investment in your product if you don’t have a revenue generating business model yet.

Announcing this week’s Coffee Meetup + Scrum Talk

Everyone,

Just like last week, this week’s Coffee Meetup will be held at the VIVA Coded Academy. For you who aren’t familiar with our Coffee Meetups, they are a casual get-together for local entrepreneurs and tech enthusiasts to meet, network, share ideas and collaborate over some good coffee.

This week, there’ll be a talk on Scrum Methodology following the meetup immediately (at the same place). The talk is part of the Google Developers Group weekly meetup.

We think this talk is a MUST for anyone who wants to start a tech startup or is currently involved in one! One of the biggest challenges startup founders face is how to best manage a software project. Often, founders make fatal management mistakes that kill their startups early.

Whether you’re a technical or non-technical founder, this talk will help you understand the principles of running a tech project, and avoid very critical mistakes.

The talk will cover “Scrum” management methodology. “Scrum” is an agile software development approach that greatly minimizes the risk of failure. It is a great framework for building and managing a startup team.

The talk will be presented by Hamad Mufleh, founder and CEO of YallaWain. He is a product designer and developer who’s been on all sides of software projects; as a client, manager, developer and ui/ux designer.

Details:

When: Wednesday, August 26.

Schedule:

7.15 pm- Coffee Meetup

7.45 pm- Scrum Talk

9.00 pm- Discussion, Network, and Pizza!

 

This is an open invitation. See you all there!

Announcing Coffee Meetup + Basics of Digital Marketing Talk

This Wednesday, the StartupQ8 Coffee Club Meetup will take place at The VIVA Coded Academy, Kuwait’s first coding school. The meetup is a chance  for local entrepreneurs and tech enthusiasts to meet, network, share ideas and collaborate.

This week, the Coffee Meetup will proceed a talk on the Basics of Digital Marketing by Abdulaziz BuKhamseen as part of the VIVA Coded Academy’s speaker of the week event.

Abdulaziz is the creator of Kuwaitiful.com, one of the top blogs in Kuwait. He has worked as head of digital marketing for payment startup Next Payment, and is currently handling major parts of online marketing for the Al-Babtain Group.

The talk will be most useful for those who want to understand how to best utilize paid online marketing via search engines and social networks. These basics are a must for anyone involved in a startup, so don’t miss it!

 

Here are the details:

When: Wednesday, August 19th, 2015

Schedule:

7.15 pm- Coffee Club Meetup (More info here)

7.45 pm- Basics of Digital Marketing Talk (More info here)

9.15 pm- Networking and, of course, pizza!

Where: The VIVA Coded Academy in Al-Tjaria Tower 35th floor (Al-Soor Street, downtown Kuwait)

 

See you all there!

Internet Security and Tech Entrepreneurship talk by Dr. Yaser Alosefer

Everyone,

Instead of our usual weekly coffee meetup, we’d like you to join us for the following talk:

The VIVA Coded Academy is hosting Dr. Yaser Alosefer this week for a talk on Internet Security and tech entrepreneurship.

Yaser is the region’s foremost expert in Internet Security, holding a PhD in the subject from Cardiff University. He is also the founder and CEO of Musbah Technology (Riyadh), one of the region’s leading startups in innovation. He is also the co-founder of several other successful initiatives and business ventures.

The talk will cover topics on electronic wars, ethical hacking, secure coding and software development. Yaser will also touch on his experience as a startup founder and entrepreneur.

 

Here are the details:

 

When: Wednesday, August 5th. Doors open at 7.30 pm, talk will start at 8 pm.

Where: The VIVA Coded Academy HQ, Al-Tijaria Tower (35th floor), Kuwait City.

 

Yaser is here for a few days from Saudi, so it’ll be a great chance to meet him and hear his thoughts.

 

See you all there!

 

“Square” and What Makes a Startup Investible

3.5 minute read

If you are unfamiliar with the world of Venture Capital and startup financing, the tech news headlines you read a couple of weeks ago (on October 5 specifically) would have left you scratching your head in puzzlement. The headlines read something like: “Square Raises $150m at a $6b Valuation (Despite Recording a Loss of $100m)”. It’s the part in parentheses that causes the confusion.

The actual amount raised is reported to be somewhere in the range of $100m to $150m, but that’s irrelevant. What’s relevant here is how Square, the mobile payment processor, was able to convince investors to put that much money at such a high valuation despite losing $100m in 2013. This becomes even more puzzling when one takes into consideration that Square’s valuation was set at $5b in late 2013, before the losses were reported. Subsequently, the payment giant was able to increase its valuation for this round (1 year after the $5b round) despite leaking all that cash.

In fact, most startups get financed despite reporting losses.

So, back to Square and all the confusion behind their latest round of funding. The short explanation is that VC’s tend to look at two main criteria when deciding if a startup is worth the high risk of an early investment:

  1. Growth. If “Location, location, location” is the cardinal rule of retail, “Growth, growth, growth” is its startup counterpart. Take a look at Square’s hyper-growth up until March, ’13.*
Square payment processing growth until March 13

Square payment processing growth until March 13

Today, Square’s growth has “slowed” down in relative terms. However, in the last year, Square’s processing rate has multiplied 6-7 times. The company expects to process $30b in payments in the next 12 months.

Most startups, like Square, lose money because they are financing growth. That could mean hiring, acquisitions, product development, or/ and research. Square has been doing pretty much all of the above. Investors will be happy to keep pouring money in as long as growth persists because they understand that at one point the company can capitalize on its investment in growth (in other words, start reaping the rewords). A highly “uninvestable” startup would be one that burns through cash without recording any real growth, probably because of a lack of product-market fit (it’s that reason 95% of the time, despite what some founders might argue).

 

  1. Operational profitability. Growth is pointless if the company can’t ultimately turn a profit. Thus, a startup has to prove that its current (or proposed) core revenue model can be profitable. In Square’s case, the subject has been debated since day one. However, recently Square has made it clear that it makes money on every transaction- around a very healthy 33% gross profit. How much remains from the 33% once other costs are subtracted is an issue of operational efficiency, not profitability. As such, if the company chooses, it can wipe away that 33% margin with heavy investments in growth, and drive net profit towards the negative.

An understanding of these two factors provides a more accurate interpretation of Square’s financial health; namely, that the $100m net loss is a reflection of continued investment in growth, not lack of profitability. Some would argue that the valuation and burn rate of Square have exceeded required growth rate, and as such have turned the company into a black hole for cash. That argument is plausible, but does not contradict the growth investment analysis proposed in this post.

When weighing up an investment, a VC will also take into consideration the possibility of monopoly , product range, market size, and competition. In addition, a certain class of VC’s look at different criteria from what was aforementioned because their strategy revolves around “flipping” a startup and exiting before any profits are made. These topics will be covered in later posts.

 

Slice of Advice

Focus on creating a product that has market fit in order to drive growth and profitability; only then will your startup be investible.

 

 

* http://wallstreetflaneur.com/the-mobile-payment-threat-whos-to-fear/#axzz3GhEJUZ4S

Customer Feedback is Oxygen

The customer might not always be right, but the customer is always worth listening to.

 

Kevin Systrom, co-founder of Instagram, attributes the success of the photo sharing application to one simple factor: listening to customer feedback.

 

Before Instagram, there was Burbn, a “check-in service” application. It was a slightly different version of Foursquare, but with the ability to upload and share photos live from a location. While working on Burbn, Systrom was relentless about talking to users and drawing feedback in order to understand the value and “best use” scenario for their customer base. The extensive qualitative and quantitative feedback analysis conducted by the Burbn team lead them to discover a curious pattern: most users of the application seemed to use it in order to share photos, rather than “check in” and share their location.

 

Armed with this information, Systrom “left the building” in order to grab real commentary from actual users in order to understand how the application can better serve as a photo sharing service. After numerous customer interviews and analysis, Systrom came to a conclusion that would become the basis to Instagram’s success and hyper growth:

 

People wanted to share photos quickly from their smartphone, but photos taken on mobile simply didn’t look beautiful.

 

Hence, the infamous photo filters were born. Keep in mind, at that time (2009), smartphone cameras took poor quality photos that rarely looked good. The “filters” solved this problem, and allowed users to share beautiful photos instantly from their mobile.

 

Eventually, Burbn became Instagram, which recorded 25 thousand users in its first day of release.

 

In retrospect, what Systrom and his team discovered might seem obvious. However, only with an incessant approach to soliciting and analyzing customer feedback could the Instagram/ Burbn team have realized how widespread the problem was. Customer comments also put the Instagram team on the right track to building a feature set that tackled actual problems faced by their users.

 

Customer feedback is oxygen. It breathes life into a dying startup, and can help the startup ignite into a fire of hyper growth.

 

Slice of Advice

In order to build something that people want and use, you have to listen to those people. Don’t lock yourself in the office and assume you have an intuitive understanding of who your customers are and what they want. Leave the building, and listen carefully to comments from real users. It’s the only way you’ll build something worth anything to anyone.

The Power of Small Changes: From Bankruptcy to $10 Billion

For a startup, a small change could potentially lead to gigantic results.

 

There’s a well-known but often untold story about Airbnb, the worldwide platform for renting lodges and residential space. In 2009, Airbnb had been operating for about a year, and was facing doom and failure straight in the face. The Silicon Valley startup had flat-lined at revenue of $200 a month for a long period of time, and was starting to run out of cash very quickly (most of the cash they had was in the form of credit card/ personal debt).

At that point, the Airbnb founders joined Y Combinator and were advised to forget scalability and focus on customer satisfaction. With that advice, the team reassessed their website and embraced customer mentality to understand why users were coming to the website but not making bookings. The answer stared them in the face: the pictures of lodges and apartments posted by hosts were terrible. Really terrible. It was no surprise none of the customers were booking; the low quality pictures made most lodges look shady, at best.

Over the course of the next weekend, all but one member of the Airbnb team went to New York City to photograph the existing listings with professional cameras and equipment. The following Monday, all those photos were posted, and everyone at Airbnb monitored the results with little expectation that it would create any significant ruffle.

To their (happy) surprise, revenue in the week of that same Monday doubled to $400. In hindsight, that seems insignificant, but at that time, it was huge. It was movement.

It also put Airbnb on the right track towards growth. The result gave them a clear sense of guidance, and a better understanding of their customer base. It was a small change, but one that fundamentally altered how the startup approached problems. No longer did they adhere to the Silicon Valley mentality of “solving everything with lines of code” from behind a computer. Rather, they sought a new approach of “leaving the building” in order to go find and talk to their (potential) customers.

Today, Airbnb continue to embrace the “small, seemingly insignificant” changes because they have experienced firsthand the exponential power a minor alteration entails. In fact, their CPO, Joe Gebbia, believes that if it weren’t for that one change back in 2009, Airbnb would have fizzled out into the graveyard of forgotten startups. He also credits the “photography” solution as the feature that propelled them towards the $10 billion valuation they have recently achieved.

 

 

Slice of Advice:

Take solace in the Airbnb story if you are facing doom and gloom, and remember that when you think your product is dead, a minor alteration driven by a true understanding of your customers can revitalize everything. Dissect your product, and experiment with small changes to your design, code, or software until you find that “ruffle”.

 

Video: Airbnb Co-founder discusses the embrace of the “small change”

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