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

HOW TO ACQUIRE
YOUR FIRST
CUSTOMERS ONLINE
Do’s and don'ts based on what
worked for Uber, Airbnb and Etsy
Thales S. Teixeira

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

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.

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

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

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

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

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.

C U S T O M E R S
were used by Uber, Airbnb
and Etsy to acquire their first
5 STEPS

STEP
A C Q U I R E C U S T O M E R S

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.

STEP
A V O I D D I R E C T

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.

STEP
DO THE NECESSARY OFFLINE

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.

STEP
HAVE YOUR EARLY CUSTOMERS
F O R Y O U

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?

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).

STEP
THROUGH YOUR CUSTOMERS’ EYES

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.

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

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

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.

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

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.

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

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

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

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

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.

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

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