In the initial days of a startup, there are multiple questions that need to be answered about taking a product out into the world.
What is the right go-to-market strategy? How to identify the right product market fit? Which channels to optimize and focus on? How to build a sales team? What would be the ideal pricing? The list goes on and on.
In this article, I have tried to sum up my collective knowledge and insights from investing and working closely with startups, to help you answer some of these questions.
Some of these concepts, I believe, can help you build the foundation right and get your first customers with ease.
1. Decide on the Horizontal vs Vertical approach
Both these approaches are dependent on the sales function in hand: whether you have inbound sales or if your sales function is outbound. A horizontal approach works well if your sales function is inbound and is kind of a self serve model. But if your sales function is outbound I would highly recommend the vertical route. Having said that, your product can remain horizontal but your go-to-market strategy has to be vertical.
In the beginning, the goal of every startup should be to gain momentum.
But how do you gain momentum, and how does going horizontal or vertical have an effect on the momentum of your business?
For one, customer references can help you immensely in gaining momentum. And taking the vertical route, gaining customers from one sector, and getting references from them will put you on a fast track. Customers usually do not have the time to go through each of your products, so if you have shown success in one category they are looking for, you will have them onboard.
In case of inbound sales, there is a structure called the T Model. In a T Model, you allow any customer to come and subscribe to your products.
This lets you see and observe which categories are customers most gravitating towards. You might have 1 or 2 customers in each category, and have 20 in another category. So, then it becomes obvious that you need to pay attention to the category that has 20 customers as opposed to 1 or 2 in the other categories.
Now your focus should be to make that part work better. The conversion rate in inbound customers is much higher and this way you can identify an emerging T Model. Next step would be to identify the second best category, and start to work towards that and so on and so forth. Slowly you will start to see that your T is starting to look like a pie structure and then eventually a centipede.
And no matter which route you take, the goal has to be to get to the first 100 customers fast.
2. Know if you are playing in Push or Pull markets
Let’s first talk about pull. What is a pull market? A pull market essentially is when there is demand for a product, and customers are looking for the product. There can be one or two anchor products and the rest can ride on those anchor products based on how customers search for it.
So, it is important to look at the search volume, keyword volume and the category of the product. You need to not only look at how many people are searching for it but also look at the regions they are being searched from, that is, if you are looking to build a global product. You don't need perfect science here, you just need to know whether there are enough people searching for it.
And secondly, can you convert these people into your customers? So, the pull model is a play of content, it is a play of SEO (Search Engine Optimization) and SEM (Search Engine Marketing). It will take some time and you need to really master that part. You need to make your search volume grow on a daily basis. And that model works exceptionally well for businesses up to 3 to 5 million ARR.
You have to get your SEO right and you have to get your SEM right. You need to spend a little bit of money and you need to measure the conversion rates. Instrument your website and see how many people come through and how much of those get converted.
But, at times the keywords are extremely expensive because the big guys are also competing and throwing money on it. And you might not be in a position to fight that battle, in such cases you can be creative with the keywords.
If you are going outbound, then it is hypothesis driven. Build by picking your first 5 customers and co-create with them. Pick your first customers in the domain you understand. And if they have built a brand for themselves, have them endorse you. These endorsements will make it easier for you to get to the first 100 customers.
3. Identify which channel is working and double-down
To check if a channel is working or not, you need to measure your CAC, what it costs to acquire a customer, and how long it will take to make that customer profitable. I would recommend all startups to get one channel working first. Don’t try multiple channels.
Try to build referenceability in one category, or if you know of a category where your potential customers are, then target that channel.
Reddit is a very powerful tool: if you know there is a Reddit group and people are discussing a topic, you can also infiltrate that group, and see how much information you can get there. The goal should be to get to the first 100 customers. Don't worry too much about the scale of the channel, don’t worry too much about whether the channel will become obsolete after sometime. You will learn a lot more in the process of getting to your first 100 customers. So, for the first 100 customers explore everything. Whatever works, go deeper. The CAC (Customer Acquisition Cost) is the ultimate proof of whether the channel works or not. And once you start getting customers, try to retain them, channelise your energy on retention.
If your product is not being used daily or several times a week, then chances are your product may get abandoned. I would recommend a co-creation model, where you identify your first five customers, work and learn from them deeply. As a founder, you should spend time with your customers. Just get them to give you brutally honest feedback. You don’t have to work on the feedback immediately but that information will help you understand pain points, understand where people are likely to abandon you and how you can fix that.
4. Shape your product DNA
Pick your first set of customers. And it is very critical who you pick. You learn a lot from them and your product DNA starts shaping up after you have your first set of customers. If you pick the wrong first set of customers, and if you want to switch the DNA of the product later, that becomes harder. Many times we make the mistake of picking the first five customers only in India, even though we want to do well globally. Make sure you have regional diversity. Maybe one from India, one from Europe and one from the USA, if you want to be a horizontal product across all regions.
5. Build your sales team
As a founder, you must get involved in the sales process. If the founder is not involved in the sales process in the beginning, it seldom works. You do not need to be skilled in sales: Just be on calls, listen and understand.
Do not hire a Director of Sales, or VP of Sales. Hire someone at a manager level, who can work alongside you. Hire individual contributors, do not hire a cookie cutter sales guy. Hire a solution based sales person in the beginning, someone who is flexible and can work around customer needs. In the initial days both your product and customers are amorphous, being flexible is essential.
If you are hiring a sales person in the USA by paying him/her 120K to 125K, the goal of that person should be not to hire the second sales guy until he can make it to the quota. If you hire someone at that cost, let him focus only on sales. You can hire a couple of juniors here in India to do the heavy lifting for him. Let them do all the lead generation, market research, and so on.
6. Getting to your ideal pricing
There is a lot of art and science that goes into pricing. Typically what I have seen is that you should not worry too much about your first 100 customers. It is okay to give them a deep discounted price. As long as you are not losing from a gross margin perspective. If you see the gross margin is okay, leaving money on the table is fine.
First, get people interested in the product and if pricing is a hindrance, then lower it. The next step would be to get some customer reviews. Once you have some customers, somebody has to spend some time, usually a month, to look at the pricing structures and you need to redo the pricing.
Pricing per user is a better model than departmental license. You need some sort of a denominator, so if your customers grow, they pay you more. Could be usage based, could be per person based, could be storage based, that's the first part.
The second part is, does the customer have needs in the future, and if he does, because you are there already, can you upsell a better product to him? If you are giving your primary product at cost, can you sell a 2nd, a 3rd, and a 4th product and make money on that. The critical factor is how to get customers to use your products.
Make sure there is differentiator pricing for different regions, with some sort of an IP to make sure the US customers don't see the India pricing, and the Indian customers don’t see the US prices.
7. Dealing with competition
First is the question of category: Does this category allow multiple products to exist, or is this a winner take all situation?
Most B2B products are rarely that. But when you look at B2C, sometimes that can happen. But don’t worry too much if the category allows for multiple products.
If the category allows multiple products, you need to go with something completely differentiated and disrupt the pricing. You either go with free or freemium models or a unique feature set, or something that others cannot do. Start with small customers and then go after large customers.
Your job is to find the first five customers whether you have a product or not. Next is to figure out how to get to the next 50. Align everything around that part.
If you have got 5, 10, 50 customers, then focus on retention. Make sure the customers are happy, and and are not abandoning you. Spend all your energy on tweaking the product for the above goals.
In conclusion, build a great product, design a good go-to-market strategy and acquire a good set of customers. Repeat. There’s no better strategy than that.