Sponsored by Google Cloud in partnership with Sifted: Starting up smart report Read the report Startup Life/Analysis/ Build it and they’ll come — right? Finding your first paying customers How to figure out what to charge, while discovering the right strategy — and tools — to attract your first customers By Sifted 9 June 2022 Sponsored by Google Cloud in partnership with Sifted: Starting up smart report Read the report Startup Life/Analysis/ Build it and they’ll come — right? Finding your first paying customers How to figure out what to charge, while discovering the right strategy — and tools — to attract your first customers By Sifted 9 June 2022 You’re a founder who’s built an MVP, got some great early feedback and iterated accordingly. Now comes the tricky bit: find your first paying customers and set a pricing strategy that resonates with the market. Thibaud Hug de Larauze cofounded Back Market in Paris in 2014. It was the first marketplace dedicated to refurbished tech products and has grown to service more than 5m customers across 16 countries. Its Series D funding round in 2021 raised $335m, but in the beginning the team had no money in the bank to advertise their innovative solution. “We had to get creative,” Hug de Larauze says. “Your first customers are always friends and family. What’s interesting is the first customer that you don’t know, or who doesn’t know anyone that knows you. That happened about a month after launch for us. We were working out of an incubator at the time, and that first ‘real’ customer had seen one of the adverts we’d put up in the toilets.” Back Market has had to nurture two distinct groups of customers — people choosing to purchase refurbished devices rather than new ones, and the sellers using the platform. “You need to be obsessed with creating more value for both types of customers all the time. It’s never over,” he says about the company’s growth over the past eight years. “We ask everybody who makes a purchase on the platform to rate their experience. We’ll ask them how the battery life was (which is the biggest concern for refurbished technology products), how clean the product was, how they’d rate the delivery experience.” Building trust is very important, so those reviews are displayed on the website and used as part of the algorithm to rate the quality of the sellers on the platform. “We got very inspired by Airbnb and the way they do it,” he adds. Find a champion For B2B companies, the road to securing paying customers can be long and winding. Boris Lokschin, CEO and cofounder of Spryker Systems, works with sales cycles as long as six to nine months with multiple rounds of meetings. “It’s easy to get people in enterprise excited, it’s much harder to get them to commit,” he says. “The buying process is very irrational. You will talk to everyone — from purchasing to legal and management — but none of them will ever see the product or use it. It took us some time to figure the process out.” What often helps B2B startups is finding an internal champion who can help you navigate an unfamiliar landscape and advocate for you in internal meetings, says Eamonn Carey, general partner from Tera Ventures. “These are often big organisations with lots of hierarchy, lots of people with similar job titles. It can be unclear who does what. You need to understand who’s going to be the user and who’s the purchaser and tailor your pitch accordingly.” “It’s easy to get people in enterprise excited, it’s much harder to get them to commit” If you’re building an HR tool for example, the HR manager might love it but they don’t tend to have any budget. “So you need to persuade the CEO that this is going to provide dashboard-level reporting, which will make their board meetings better,” says Carey. Lokschin agrees: “We basically have a map of all of the involved parties. Some are champions, some will not like you, some will have their own agenda, some you will never see but they’re signing off the budget. There may be politics in the background, or procurement requirements that have nothing to do with the product. Over time you narrow down the ideal customer profile.” Where one goes, more follow The team behind Onfido, the document verification startup that’s valued at £345m, took a punt when it came to signing their first customers. The tool wasn’t 100% ready but they needed more samples to improve the technology. “We had fewer IDs in Latin America or southeast Asia but our pace of improvement was so good, we’d explain they were buying into the vision,” cofounder Husayn Kassai says. Other times, they convinced potential customers to run Onfido alongside another provider and compare the results. “Sometimes we’d be in bids and we’d lose. But they’d already integrated to test us and we’d say, ‘rather than switch us off, let’s re-engage in 18 months or three years when your renewal is coming up’. Around 2017-18 half of the large contracts that we won was because we conducted it so well the first time.” Case studies were the other key component for success — the solution had to be seen to work. “We were replicating the face-to-face bank onboarding process digitally,” Kassai says. “In online banking applications, you normally have a 40% drop off rate, we were able to tangibly reduce that. We could take a percentage or two off compliance and fraud risks, and do x, y and z faster, but crucially, it’d be at 10% or 20% of their current cost. Pricing became a lot more value driven… it was a cost and return on investment perspective.” Free can also be a strategy Pricing is difficult to set for those first customers, particularly when a product has fewer bells and whistles to monetise. In Sweden, Johan Attby didn’t introduce a paywall to his startup Fishbrain, a mobile app and online platform for anglers, for four years, relying on venture capital instead. Now, the startup has a global user base of 14m anglers, 10% of whom pay a fee. Behind the paywall are fishing insights derived from crowdsourced data about users’ logged catches, plus temperature, wind speed, wind direction and a heavy dose of AI. Part of the benefit of launching the product as a free app was the ability to attract users as quickly as possible, which were predominantly found through paid user acquisition via Facebook and Google. “It’s been a tricky business to scale and we were probably spread too thin at the beginning,” Attby. “People want to be on the same platform as their fishing buddies, and it’s very local because the majority of anglers fish within a two-hour drive of where they live.” Given his time again, Attby says he would target a very specific niche of fishing in one particular area and scale from there. He’d also have done more offline marketing. Focus on value, not technology For startups built around clever technology, getting the marketing messaging right can be a tricky balance to strike. That’s something Rocio Pillado, partner at Adara Ventures, which predominantly invests in deeptech startups, comes across a lot. “You have to take a very complicated product or technology and be able to explain it very easily so that anybody can understand it,” she says. “You need to be able to demonstrate the value and benefit customers are going to get from engaging with your service.” Carey from Tera Ventures agrees. “I see people describing their products in very technical ways, using buzzword bingo, when what they need to do is describe the value they’re delivering, rather than the technology they’re building. You should be A/B testing everything, making sure the messaging lands and you’re not pitching something at too high a conceptual level.” “You have to take a very complicated product or technology and be able to explain it very easily so that anybody can understand it” Louise Hill had her work cut out for her when she was first pitching GoHenry to potential customers. The startup encompasses a pre-paid debit card and financial education app designed for children aged six to eighteen. It launched in the UK in 2012 and has since expanded to the US market. “I realised my kids needed to learn how to manage money in what was becoming an increasingly digital world,” Hill says. Fast forward 10 years and one in five 11-12 year olds in the UK now has a GoHenry card. Marketing “was probably the biggest challenge when we first started,” she adds. “In the nanosecond you get a potential customer’s attention, we had to explain two things — why it was a good idea in the first place and why they needed us in particular. We tried a lot of things to find our first customers: local radio, family events, partnering with schools, digital marketing. In the end, it was a combination of PR and word of mouth that worked”. Building trust has also been key. “One of the things I’ve always said to everyone who’s joined [the team] is you’re looking after people’s money and you’re looking after people’s children. Those are probably the two things that people get the most emotional about. So we spend an awful lot of time talking to customers through research days, surveys and touchpoints like Trustpilot [the consumer review website]. And our first hire was a head of member services.” This is a shortened excerpt from Sifted’s latest report, Starting Up Smart, sponsored by Google Cloud. Sponsored by Google Cloud in partnership with Sifted: Starting up smart report Read the report Related Articles 7 dos and don’ts of starting a company Sponsored by Google Cloud Click here to read more Should startups raise salaries in line with rising inflation? 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