How To Get The First Customers For Your Startup

today, growth and acquiring your first customers. My name is Adeo Ressi. I'm CEO of the Founder Institute. Let me give you a quick introduction to the Founder Institute before we jump into the topic and our very special guest. So we're an idea stage incubator helping people who have the genesis of a business boiling in their mind get out of the building and start building a real company. We operate in over 120 cities worldwide and we help launch about 2,000 new companies a year. About 85% of every business that we create survives for years on end, 70% are doing quite well, and about 50% of them are funded. If you're interested in applying to the program, please go to fi.co/join. And if you're a community leader, you may want to lead a chapter in your city, and you can go to fi.co/lead to learn about that. So let's jump right into the topic today because it's a super important one. So how to get your first customers and I can't tell you how many people I interact with on a daily basis that actually believe if you build it, they will come. And sometimes that does happen, sometimes as if, like, you know, getting struck by lightning, or sometimes like winning the lottery. So in fact, for everyone else that hasn't won the lottery or been struck by lightning, Your biggest issue once you've made something is how to get customers and users onto your product and how to cut through all the noise and chatter that's out there so that people actually know what you're doing and actually try to use it. So I can't imagine a better person to have to discuss this topic with than our guest, Gagan Bihani. Gagan is the co-founder and CEO of Sprig. I can tell you as a user of Sprig— hey, Gagan— it's literally one of my favorite services out there. I probably— you might know this with your god mode— but I probably order, I don't know, 5 Sprig meals a week at least. At least 5. Yeah, not discrete days of the week, but me, I'll order a few nights, me and my wife will order another couple nights. It's truly amazing. In fact, I was meeting with a bunch of food entrepreneurs last night, and I was like, yeah, food as we know it is about to change because I can click a button and 15 minutes later there's like an amazing meal delivered to my house for $10 to $15. But before that, he was doing some growth work at Lyft, helping them get user acquisition. And before that, he was the co-founder of Udemy. So Gagan, you know a lot about growth, and before we get into the topic, did I miss anything that you want to add? And by the way, if you haven't tried Sprig and it's in your area, please do. But Gagan, on your background, anything you would like to add?

No, I think the only other thing is that I got my start working with you, learning from you in the Founder Institute, which I think is a huge testament to the program that you've built, and it really gave me an opportunity to become an entrepreneur and learn how to be successful.

Well, dude, you certainly exceeded everyone's expectations on success, so hats off to you. I think Sprig is probably one of the top Silicon Valley startups right now, so honored to have you, my friend. So let's talk about the subjects today: how to perform customer research and development, how to acquire your first customers, and how to scale customer acquisition for your business. Now, one Robert's rule of order thing: you can ask questions. So there's a little dash bar on the side, it has a thing that says questions, and if we're going through something, even now, if there's something you want to ask Agan or ask about growth, pop it in there. I've got a team in the other room, they're going to read it, and they'll get it on screen, and we'll get to most of the good questions that we can throughout the talk. So Gagan, before you acquire customers, how do you perform that initial research and development? And I know you did some fantastic work at Sprig, so let's jump right into that. Maybe if you want to give either general advice or talk to us about what you did at Sprig, that would be lovely.

Yeah, no, I'll couple it, I'll do both. So at Sprig, what's interesting is that it was my second company and the third time I had worked on a startup because I had Lyft in between. And so I benefited from experience and the knowledge that I think most founders don't get when they're starting their company because you usually don't get more than one swing at the bat. And so the reason why that's relevant is because Sprig was very intentionally designed. We actually planned the process of creating Sprig as well as you would plan a marketing program at, you know, stage, you know, year 2 or year 3 at a company. So that's very rare, I think, and it gives us a unique opportunity to talk about customer development. An example of that is when we started Sprig, when you start any company, you have really high-risk assumptions. And so what you want to do— and I believe in the Lean Startup philosophy wholeheartedly— and so what you want to do is think about what's the highest likelihood of failure? What's the assumption that you're making about your business? What's the leap of faith assumption you're making about your business that's actually like, if you're wrong, it will kill the company, right? And what you want to do is— actually, we literally did this on a whiteboard when we came up with the idea for Sprig. We wrote down on a whiteboard, What are the things that would be most likely to kill us? And then basically we went through the next 6 months prior to launching Spring and actually ran tests and did research to evaluate those things. So at most companies, at like 90% of companies—

Can I just add something though? And Gagan, just for those who don't know, because Spring is probably littered with a lot of these things. It's a delivery service, right? So how the hell do you deliver stuff? It's a food business, so how do you ensure quality? It's, you know, and then, you know, you're delivering food over distances, so how do you make sure that it tastes good when you leave and tastes good when it arrives? I mean, I've got to imagine you had a pretty long list of things that you needed to test.

Yeah, that's right. You're totally right, Adeo, and what I'd say is what's interesting is most companies, 90% of companies I would say, that I hear about or learn about are companies where their big hairy question is whether or not people want their product. Right, so it's product market fit at its core. What's interesting about Sprig and unique about Sprig is that was not a big concern for us.

If you deliver a cheap meal that tastes good, people will want it, right?

Precisely, right? We figured if we deliver an organic healthy meal to customers that they will, in 15 minutes, you know, they'll love the product. That was not a concern, but it's very, very rare. So in most cases, that's what you want to test. And so while at Sprig the first 2 or 3 things that we were testing were more around operational things, actually everything, what you mentioned was almost exactly what we tested. To begin with was, what is it like to deliver food at scale? What is it like to make food at scale? How do you marry those two things together such that you can have a real product delivered to someone's door? And that was what our first couple tests were like at Sprig. In fact, I remember the Wednesday after we launched, the Wednesday after my last day at Lyft, so literally 3 days into the company, we served 50 meals to customers all over San Francisco.

So now can I ask you about that specifically? Because I remember you telling me this. Now at that point, did you make the meals? Because I know later you did some chef testing as well, or did you just buy meals and try and just deliver them?

Yeah, we essentially bought meals. Actually, the original idea for Sprig was not what it is today. So the original idea was a marketplace for cooks, home chefs, or even professional chefs to be able to put their food on our marketplace, and then we would sell it via our platform and take just a cut of the transaction. And very different from building your own kitchens, owning your own delivery, and, you know, doing sort of hot meals, which originally the meals were supposed to be delivered cold. So there were some pretty big changes to the model that we made as we learned more both about chefs and about customers, and that was kind of the two-part lesson. And so what I would say at Sprig The biggest concern was not customers in the beginning, it was chefs, right? It was cooks. What's cooking like? How do you deliver food? What are the safety concerns there? How do you, you know, make food at scale that's affordable? And so the first things we did was we posted Craigslist ads for chefs. And I remember the first Craigslist ad that I posted was basically, I got like dozens of angry emails from it, from cooks who, you know, who had spent their lives cooking and thought I was completely ignorant. Here's what I said, I said, "Hey, I'm a single young professional, I am busy, I work really hard and I'm not interested in making food for myself but I want really good quality food. Can you make me a meal, I want a meal between $10 and $15 every day that's healthy and good for me?" And the chefs responded and I got about 10 to 12 respondents who actually responded politely and then another half dozen or so who were just like, I can't believe you're so spoiled. How could you possibly think that that's possible? Like, I work for hours and hours to make this meal for you, and you think it's gonna cost only $15? And it was actually eye-opening because, of course, I had no intention of actually doing what I said. I was acting like a customer. That was the point of the research. But I was acting like a customer, and I was on the phone with these chefs, and I learned a lot of things very, very quickly, which was that, you know, making one meal takes the same amount of time as making 50 almost. It takes the same amount of grocery shopping, it takes the same amount of prep and cooking, and at least they don't scale linearly together. So if you cook 1 meal, you get this— you may take, you know, it may cost you $30 or $40 in labor, but if you cook— actually, it costs you a lot more, but just as an example, let's say it costs you $150 in labor to cook 1 meal, to cook 50 meals, it may cost you $300 in labor.

Wow.

So all of a sudden, instead of $150 per meal, you're spending $6 per meal in labor, and that's obviously a significant advantage. And of course, as you scale, it gets better and better and better. And so that was one of the lessons that we learned very, very early on when we were building Sprig, just through customer research, essentially customer research on the supply side, right? Not on the demand side, but on the supply side. So let's—

can we go to the demand side? Because you're right, and I bet in all honesty, all the entrepreneurs, maybe a third of them has something that's so good that everyone would want, right? You don't really need to look at the customer too much. But for the other two-thirds that do, or more, the concept of a customer persona and digging into that, right? So did you do some of that as well, or what are your views there? Because I also want to add Gagan is a leading speaker and thinker on growth hacking.

Yeah, so this is very much pre-growth hacking, I would say. So here's how I look at it. Even if you're one of those 1/3 or 10% of companies for which you think your product is almost perfect for the market, you still ought to do customer research, and we still did a lot of it at Sprig before we ever launched. And what I do, the most important thing about customer research is to eliminate your confirmation bias. So it's very, very easy when you're an entrepreneur to be really tied into the ego that is an entrepreneur's mind, right? Every entrepreneur has ego, and the ego essentially says, "Hey, I am a really smart person. I'm arrogant enough to think I can go and take on these big hairy problems that, you know, will eventually build a company that's worth billions of dollars." In order for that to be true, I've got a lot of self-confidence. Most entrepreneurs, I think, have some self-confidence issues with that, meaning that either they're very overconfident or they're very underconfident or some combination of that. Basically being, hey, you're constantly looking to affirm whether or not you're actually doing the right thing. Is starting a company a good idea? Is my idea good? Am I— and so the problem with all of that is if you don't check that at the door, your entire customer research will be skewed, and everything you do will be confirmatory instead of investigatory, which is really what you should be doing.

Right, or frankly, you know, I would even say in order to eliminate the positive bias, I recommend a lot of times people look to kill rather than look to investigate, because they are so wedded to something that investigative would be the right thing, but their bias will always be, oh, it looks right, good, check.

Exactly. No, I completely agree, Adeo. One of the critical things is to basically assume that your idea is probably not good, but that you might have a good direction. I mean, you want to go in a direction, you always want to have a vision. Udemy, Lift, and Sprig all changed their business models dramatically from the time that they were conceived to the time that they launched to the time that they became big companies. However, what's fascinating about this and what's interesting about the consumer internet stories, I think at least, of these companies is that none of them changed their mission. Their mission was exactly the same. If you heard me talk about Sprig, and you heard me talk about Sprig, remember at TechCrunch Disrupt we were talking about it, or at some conference, maybe the LAUNCH conference, LAUNCH conference. We were walking down the halls of the LAUNCH conference, I remember telling you the idea, and remember it was completely different from what Sprig is today. But the mission was always the same.

Yeah, exactly, it hasn't changed much. So you were doing this investigative research on— well, there are a couple questions too on Sprig, and let me come back to that. Let's get a couple of these questions out there. So Joshua is asking about things that you identified most likely to kill Sprig. We listed 3, right? The preparation of food at scale, delivery in general, and then the combination of the two. Were there any other big ones that you were worried about?

Yeah, I mean, those are the three big categories, but within those there were lots of questions, right? So for example, what would the cost structure be like at scale, and would it be at a price point that we thought consumers were going to be excited about, right? Another question was, you know, was the market size— were we right about our sort of expectations that health was a critical sort of decision point? For customers as well as convenience, right? I mean, of course, we felt very convicted about that, but it was something that's worth calling out as an assumption. Another assumption was that this might have the opportunity to have winner-takes-all sort of a business model, which I think even today most people would be like, "Oh, food delivery, that's super crowded." And obviously, you know, I believe that there will be multiple successful food delivery companies, but I think it will consolidate much more dramatically than anyone understands. And the reason is because we figured out that there were major economies of scale in the business that were just very, very hard to compete with once you're at scale.

So Henry is asking, if you're doing this research like you're doing, what is the best way to prioritize feedback for a product, either feedback from the team or feedback from the market? Right, so you're getting inputs, right? How do you know what's right and what's wrong?

Totally, yeah, so I mean honestly that's where like, that's not something you can teach and that's what makes a successful entrepreneur is the ability to evaluate information with lots of competing challenges and very little information too. Usually when you make a decision as an entrepreneur you have 25 to 40% confidence that your decision is right, and maybe even less than that. And as a big company executive, you have more like 60-80% confidence that your idea is right. And this is a fascinating challenge. And so honestly, like, I don't have any secret sauce here. The secret sauce is listen. Listen to your customer base, and don't ask them questions like, "Hey, what do you think about hot meals delivered in 15 minutes?" Like, it's the Henry Ford quote of, "If I asked customers what they wanted, they'd say a faster horse." Your customer has no idea what they want, but they know what their problems are, and listening to them is really the key. So you ask them vague investigatory questions like, you know, "What did you do for dinner last night? Why did you choose that? What about that meal made you choose that? What did you do for dinner the day before? Wait a second, why did you eat pita and hummus on Wednesday night, and then you ate a salad on Thursday night? Like, what was different between Wednesday and Thursday? Like, I don't understand." You know, for lunch, what'd you eat? Oh, what'd you eat the day before? Wait, you eat the same thing for lunch, but then you didn't eat the same thing for dinner. Why do you choose the same thing for lunch but not for dinner? You know, what'd you eat for breakfast? Oh, what do you think about this, um, what do you think about this company, this restaurant that you ate at? Would you go there again? How did you find out about it? And you ask them really vague, I mean, these questions are super vague. I'm just trying to understand people and how they eat, right? And I'm trying to understand, Did you eat at home? Did you eat alone? Did you eat with your friends? Did you eat as a couple? Do you have kids? What did your kids do? Where did you find out about— how do you find out about your kids' dining habits? Oh, they don't like mac and cheese? How do you know that? Have you tried to convince them that mac and cheese is good for them? You know, and so you're just firing across questions, but notice none of those questions have anything to do with Sprig, really, right? They're just asking about dining habits.

Well, they loosely do because you're providing a food to the customers. So by asking them how they eat, what they like, you're getting a sense of— loosely.

Right, and you're trying to glean information from your customers so you can better understand what their needs are and what opportunities there are. And then you tailor your product towards that, and then you give them the product, and then you interview them again, and you have them experience the product, and you learn more about them. What do they think? How did that experience compare to what they did before? Are they going to do it again next week? What would make it better? What didn't they like? What did they like? What price did they— how did they think about the price, etc.? And so you do this as a— this is a constant evolution. We do this today at Sprig. I mean, we just did a series of focus groups, both men and women focus groups of Sprig customers who are loyal, somewhat loyal, you know, very disloyal. And then also we did a whole bunch of email research as well, surveys, and I also went and served on Sprig on Tuesday night of last week. And there's just a constant feedback loop of customers and Sprig, and that's how we do what we do.

Well, I want to also just go back to Henry's question, and Lance has a good question as well. So one of the things that you brought up about decision-making is you never have all the data. You're never going to make make a perfect decision. It's not like, oh, now I have all the data and it's clearly A. So the best piece of advice I heard there is you're going to have to get feedback, make decisions with very limited information, but you can look at it this way. As an entrepreneur, most decisions early on are live or die. So however, if you choose the wrong one in the die category, there's a 50% chance that you can recover. So in fact, you have a 75% chance of actually getting it right, so you just might as well decide. Lance was asking, where did you get those very initial people to interview, and do you have any tips on finding the right types of people to ask those open-ended generic questions to, and maybe not even— you can talk about obviously everyone eats, so maybe we could look at Sprig, but just also general advice to other people in different industries.

No, that's actually great because I was about to say that for Sprig it's easy, I just walk to a coffee shop, like everybody eats, and so it was very easy to go and talk to people about their dining habits, and I'd go up to them at coffee shops or bars or whatever. At Lyft it was bars, at Sprig it was coffee shops, just because of the nature of each business And you know, and I also asked people who were first or second time customers of Sprig a lot, so that was another thing, or first or second time customers of other services. And I have no problem asking my friends, by the way. I have no problem interviewing my friends. They are often the most willing to share information. And I just take with a grain of salt the fact that they are my friends, and they kind of know what I'm trying to do. And so I disarm them as much as possible and treat them like research subjects and not like friends in those interviews. So for other companies, companies that have much more specific customer bases, you have to go and figure out how to find your customer. That is your first hustle challenge of an entrepreneur, is how do you find that person who wants your product so badly, but there maybe aren't that many of them. And I don't have an answer because it's— well, I mean, I can have an answer if you gave me a specific company, which we don't have time for today, but you know, it depends on the company. If you're a company that's selling I met the other day a company that's selling software as a service for small businesses. Well, then you should go and knock on the door of 100 small businesses and wait until someone is willing to talk to you about it. And the other thing—

Let's talk about that for just one sec. So let's say you're doing SaaS for a small business, right? Enterprise small business sales. If you knock on the door and like someone who is not the CEO talks to you, but you know the CEO makes the decision, but maybe that person would use the product, is that good? I mean, I'm asking as a bit of a rhetorical question, but you know, does it need to be the decision maker, or can it just be anyone who might use it in the organization?

I mean, you should be doing— for B2B, you should be doing customer research of all of the above, right? You should be doing decision maker research, and you should be doing research on the person who is going to use the product, because ultimately both are critical for different parts of your business. The decision maker should probably decide your feature set, right? And should probably decide, like for the most part, your strategic positioning for the company and where it's going to go. But then the person who's going to use the product should probably also decide how your UX is going to be and what types of engagement tools you're going to provide. It's really about learning about all different types of people and then figuring out what types your product is going to resonate with most, and then diving deep on those people.

Let's move on because you did an amazing MVP. I mean, this is one of my favorite stories about the development of Sprig and sort of— I mean, I don't want to give anything away, so I'll turn it over to you, but literally like If everyone is on this call and watching this now, you will— this was probably one of the best executed tests I've heard of. So can you tell us how you sort of initially went to the customers and tried to figure out if everything would work?

Yeah, totally. It really is something that I think a lot of people can learn from because, you know, Sprig is an interesting business because of how complex it is, right? You're delivering food which means that you have to make food at scale, and then you have to deliver it, you have to have a dispatch algorithm. So those two things in and of itself are not things that are usually MVP type of businesses, right? Like, most chefs would tell you that step one to start a restaurant is to write a business plan and then start developing and designing a space and designing the menu, right? And then most engineers would tell you that if you want to do real-time dispatch at scale, you know, thousands and thousands of meals per hour or something, that you would need to build like a significant amount of technology, like tens of thousands of lines of code probably to make it work, or certainly thousands of lines of code. And what's fascinating is that when we started Sprig, we were neither chefs nor were we engineers. It was two business guys, me and my best friend from when we were 6 years old, so both essentially generic business people. I mean, we don't have any particular skill set. We have lots of— we're jack of all trades, masters of none. Basically, right? So—

the entrepreneur's credo.

And so what we did was we said, okay, what's our highest risk assumption? Our highest risk assumption is that we cannot deliver meals in 15 minutes that are like at a reasonable price point. So we went and tried to do that. We basically said, okay, that's the highest risk assumption, that existentially this is impossible to do. Let's go see if we can do it. And we went and hired a chef who was a personal chef for George Lucas. and we said, hey, hey, Chef, Chef Sam, can you make 40 meals for us for a night of service? And so he went and made 40 meals and brought them to us, okay? And we paid him for that, and it was very cheap. I mean, it was maybe a few hundred dollars, right? And we actually charged our customers, so we made all the money back anyways. And then we had to hire drivers, and so we hired 3 drivers off of TaskRabbit, and 3 drivers were our friends. My co-founder was one of them, and then his fiancée now, but girlfriend at the time, and then my roommate. And our other, our third best friend basically. So all of our friends were on the road and we had a couple TaskRabbits and then we had to figure out how to do ordering. So ordering was through Eventbrite. Well, you can order tickets through Eventbrite, which is not that different from ordering meals if you think about it. And so I was like, okay, let's use Eventbrite. We can easily set it up, it takes like 10 minutes, you know, and make all our money through PayPal and people can pay via credit card, which is great. Alright, Eventbrite. And so people would send their orders through Eventbrite and then we would have And then what were we gonna do for dispatch? Well, an order would come in and we would constantly be refreshing Eventbrite because it's not built for real-time ordering, so we'd be refreshing Eventbrite to see what the order was, who was ordering, where they lived, etc. And then we would type—

Reload, reload, reload.

It was kind of ridiculous. And then we'd type their address into Google Maps, and so we'd use Google Maps as our dispatch. And the thing is that I happen to know the city quite well. Actually, if you look behind me, there's a map of San Francisco. I'm a total nerd for maps, and so I knew the city quite well, and so I I was actually our dispatch algorithm. So what we did was we had a map of the city, a printed out map, physical one, on my coffee table in my living room. And we had 6 drivers. So we needed to indicate where— I'm a very visual person, so I can't keep where these 6 drivers are in my head at all times. And so what I did— and we obviously didn't have any real-time tracking of these drivers. We didn't have a driver app or anything. And so what we did was we basically went to I looked in my closet and I saw this game, I saw Settlers of Catan, and I was like, oh my God, there's 6 different colors of pieces in Settlers of Catan. Let me get one color from each. So each driver was assigned a color, blue, green, whatever. And then we had an inventory management system that indicated how much inventory each driver had at any given moment. And we ticked down the inventory. So when an order came in, we would check on Google Maps, We would check on the map physically to see where that driver was, where their last known location was. And then we would check the inventory to see if they had enough inventory, who was the closest person, and then we'd send text messages via my cell phone to the customer and to the driver with the dispatch directions and with the confirmation text and an ETA. The ETA was calculated via Google Maps. And then we would make sure the delivery was happening, and the driver would send us a text when they were parking so we could send the customer an arriving notification. and then the driver would ring the doorbell and the delivery would happen, and we'd move— and actually, sorry, I forgot this, but we would move the sellers' baton piece over to wherever their next delivery was, so we always knew what their next delivery was going to be. So that's how we did dispatch at Sprig.

Now, so you did 40 meals, you said, that night?

Yeah, I think so, 40 or 50.

And you billed no tax?

Right, yeah, yeah, no, there was no line of code.

That's right, you used a printed out map, Google Maps, and like Your cell phone.

Yeah, and my cell phone, exactly.

So that's commonly called a concierge MVP, and Gagan was the concierge. So the idea is you don't have any actual tech, but you deliver the service nonetheless by essentially squirrels and gerbils, which are you or me. So that's awesome.

Now, how did you get—

so you delivered 40 orders How did you get those 40 people to even try it out at all? So this is a great test, but you still needed 40 people to buy. And by the way, did you get more than 40?

Or did you—

anyway, how did you get the 40 and control the limit?

I mean, we did sell out, so we actually had more demand than the 40 meals we sold. And what's important to recognize about the demand was that Sprig is something for everyone. Everyone eats, and everyone needs to eat at home, and so we just emailed like maybe 300 or 400 of our friends. So by the time we started this, we had actually recruited 2 co-founders, so there were 4 people that day. It was the— on that Sunday we had only 2 co-founders, and by Wednesday, the day that we actually served meals, we had 4 co-founders, which is kind of funny. And we were moving super fast. Those two other co-founders, myself and my best friend, we just emailed, you know, 200-300 people that we knew in San Francisco. I think we might have emailed some offices so we knew that they would tell their friends. And we emailed them on Sunday night and then emailed them again on Wednesday with the order. So it's important to recognize that, but you could easily, I mean, at Udemy we had no friends who would be customers of Udemy early on. And at Lyft it's harder because you need a real-time service, you need a need for the service, and you need to remember at the time. And in both situations you just have to hustle to find those people. I mean, let's put it this way, if you're having a lot of trouble finding your customer, then you probably have a pretty shitty idea.

Well, fair. Let's drill into that statement for a moment, because it's an important one, right? I think it rings true, right? But let's clarify exactly what you mean. So you could have like a complex B2B thing, right, that's going after procurement for a pharma company, and the customer could be buried in layers of bureaucracy at the buying firm. But I think what you meant by that statement, just to be clear, was more like if you don't know who your customer is, so you can never actually find them in the world, then your product is in deep trouble. Is that correct?

That's exactly right. Yeah, if you don't know who the type of person is who's going to be your core demographic— I mean, every company that's majorly successful has a set of people who are irrationally excited and who need this product more than everyone else. So Sprig, for example, the first people who used Sprig were much more excited about Sprig than the average human in San Francisco, right? And people in San Francisco love Sprig. We have huge penetration, but you have You have a natural waning of— you naturally expand the market and you get people who need your product less, but who still really enjoy it and use it. And so that's true for every company. And you need to find and identify who those people are, and then you need to hustle to figure out how to get to them. It's very specific to the person. Trying to get to a Deo takes a very different set of tactics than trying to get to someone around someone who likes food in San Francisco.

Right, so let's talk about that. So then you launch your product, and I mean, you've done this at 3 very successful companies— Udemy, Lyft, and Sprig. So you now are launched, and I mean, Gaga and I can tell you this is one of the hardest things that I see people do. They have a new app, they have this, they have that, and just it's like, I have 200 users, now I have 210 users.

How do you get these users?

And a lot of times I think, and I'm just speaking from speaking with hundreds of entrepreneurs, they're trying different things, they're testing different things, they don't work, and then they get but they're also trying to be really cheap. Can you give any sort of general advice? We have some questions that I'll get to in a moment from the audience on this, but any sort of general advice on got it up, what do I do to get people using it?

Yeah, so one of the most obvious things is that you shouldn't spend any money. So it should be virtually free to get your first set of customers because Again, as I said earlier, if you can't get your customers for free, then you probably don't have a product that's that exciting to people. So I certainly do not recommend paid advertising really at all. I've never really heard of a company— I've heard of companies raising money or getting to some level of success by doing some more irresponsible things in the early days of requiring customers, but I've never seen a company get to massive scale that way. I mean, no, I haven't. I mean, I'm sure they exist, but— and so I wouldn't do any paid advertising. I would do hand-to-hand combat. Your job is personally to be the marketer who goes and gets those people, so you must be the salesperson on an individual basis. If it's a consumer product, you need to sign up your first 200, 500 customers by hand on forums online, via email newsletter partnerships, via in-person street—

Okay, hold on, hold on. Let's go with each one of these. So you just listed bunch of stuff, I want you to talk about each one for a moment. So I love that, hand-to-hand combat, B2B, B2C, you get your first few customers on B2B or your first few hundred customers B2C, hand-to-hand. You just listed a bunch of hand-to-hand things, let's go through them one by one. So I think you mentioned getting out there, so face-to-face.

Yeah, exactly. I think that's more self-explanatory. We don't need to go into it in detail unless there's questions about it.

No, no, and then you mentioned a bunch of others like partnerships. Do you want to talk about that for a moment? And forums and social forums?

Yeah.

Why don't we start with partnerships first and then go to the second ones?

So at Udemy, Udemy is the best example of this because we built the entire first million dollars of revenue off of email partnerships. So if you remember when we were starting Udemy, we had a hell of a time people to make courses on Udemy, because nobody wants to be a teacher on a site that has no customers. And then on the flip side, nobody wants to be a customer on a site that has no courses. So you have this huge chicken and egg problem, and what we did was, if you remember, you really helped us do this, we filmed a, we actually did an in-person event, we did a live in-person class, and then we filmed it, we stuck a camera in the back of the room, and what's so funny, and I'm looking at this webinar and there are 635 people on this webinar, right? But I bet it's a lot harder to get someone to show up to this webinar than it is to get someone to show up to your Founder Showcase Conference. Which is honestly like the biggest example of how asinine even the smartest people in the world are, because obviously there's more impact on this webinar than you're having it speaking to a group of 150 entrepreneurs, but because you see them, you think that you have more impact on those 150 people, which is just totally false. But obviously I am passionate about this because that's what Udemy is built on. And so in order to convince people like you, although you would have done it I'm sure anyways, but other people, like Aaron Patzer or Dave McClure or Naval Ravikant, in order to convince them, who by the way, some of those guys were our investors, in order to convince them to come and speak, we had to put them in front of an audience of 60 to 70 people. And so we got an audience of 60 to 70 people to show up to an event, mostly Founder Institute people. So I basically tapped the Founder Institute network, and they— and the event was like, how to raise money for your startup. And we filmed it, and then we put the videos online, and we created email partnerships. So we found people who would want this course. We packaged this course. It was like, you know, $50 or something. And we said, we want to sell this course on Udemy. Then we figured out, okay, who's going to buy a course on how to raise capital for startups? Well, startup entrepreneurs. How do I target startup entrepreneurs? Well, startup entrepreneurs read email newsletters. That's one of the many things that they do. How do I find that out if I don't know it already, by the way? I ask them what they do for fun and how they get industry information, and I ask them what they did last weekend and what they were reading in their email. I ask them a bunch of questions.

By the way, you had 60 or 70 of them in the room, so it made it real easy, right?

Yeah, exactly. Absolutely, and so then I partnered with email newsletters and I said, "Hey, I will give you 50% of the revenue," which by the way is crazy, like that was like, you know, that was one of the most profitable emails they've ever sent. And so we'll give you 50% of the revenue and let's do a rev share and you send out an email promoting this course which is going to be good for your audience, and oh by the way, you don't make any money because you run an email newsletter and email newsletters are shitty businesses, so like I'm gonna give you a way to make money. And the first— that ended up being such a successful strategy that the first million-dollar run rate, we got from zero to almost a million dollars in total— no, not run rate, total sales, so cumulative sales— were entirely done via these email partnerships. And we just built more and more and more, and every email newsletter on— on Udemy ad in the first 6 months of our business.

And that's kind of a great idea because you you did both customer development, right, by having the physical people in the room, and content acquisition, right? So you were like, I have the content, guys, where else do you look for this content? And then boom, you went out and did the partnerships. Let's talk about social for a moment. What is your view on social, whether it's social networks, you had mentioned forums, Have they been productive, useful, good, bad?

Yeah, so I don't use a whole lot of social media to acquire customers. I think it's very, very— social media is a brand marketing exercise and not an acquisition exercise for the most part. Certainly Facebook ads are an acquisition exercise, but I mean social in terms of—

They're expensive though.

They are, exactly. And so, no, I would recommend more like forums. When I said that, I was like, if you're trying to build something for bicyclists, One of the places that bicyclists hang out on the internet is in forums, right? And you'll find the most absurdly passionate bicyclists, because who spends their Saturday afternoon writing forum posts about bicycles, right? Like, you must really love bicycles. And so the point is, you go there or you go to a bicycle shop, right? And you kind of do both, right? Because you're working 24/7, and so during the daytime you'll go to a bicycle shop, but the bicycle shop's gonna be closed at 5 o'clock, and you still have to find customers, and you don't want to waste You don't want to wait like another 12 hours. I mean, I'm super impatient, so for me that's just like a non-starter. I just keep working. So it's like, okay, then I go on bicycle forums and I start emailing bicycle owners and saying, hey, I'm starting this company that's doing this. Do you have this problem? Can I talk to you? And I might give them a $15 Amazon gift certificate or something to get them to do it. I'll do whatever it takes, but at the end of the day, forums can be a very good way to get your first couple customers. Another way to get your first couple customers is to send cold emails. So if you're selling to small businesses, you know, one of the things at Udemy that was very successful is we essentially sold to small businesses when we were trying to convince instructors to teach courses. So on the student side, we were doing hardcore consumer internet marketing. On the instructor side, it's more like small business marketing, which by the way is notoriously one of the most challenging things to do because you have low AOV, low value of your user, not enough to justify a sales team. But then you have high friction because those users act just like enterprise companies in some ways. Not large enterprise, but like—

Or cranky users, right? They're either like enterprise or really hard users.

Exactly. They're a little crazy. I once was on a webinar, actually a Skype call, where the guy I was pitching to become an instructor on Udemy actually brought out a gun. Literally a physical gun, because I brought up one of his competitors or something, and he had a handgun in his hand, and he went like this, and he's like, "Pfft," and he just faked it, obviously, he was joking, and then he puts the gun to the webinar. Those are the types of people we interacted with at Udemy when we were trying to get customers, so we did whatever we needed to do. This guy happens to be one of the most famous pickup artist instructors on the internet, and obviously we decided not to go into that that field because of how crazy it is.

Shortly after the gun came out, we decided that vertical was wrong for us. Now you mentioned something as you were going through there besides the gun, incentives, gift cards or whatever else. So you know, maybe you could mention the use of incentives to help people. Are you for or against it? What are your views on that? And then a couple of questions that are good from the audience. After that?

Yeah, I'll say two things if you don't mind that, because I think the second thing I'm going to say is going to be useful. The first thing is no, I'm not a fan of incentives, they are desperation moves, but they can still work. And if you have no way, if you need someone to spend an hour with you asking them questions, you probably have to incentivize them or they have to be your friends. Like, people don't just spend an hour talking to you on the phone that often. You can do it, with chefs we could do it very easily because we were interviewing them, So we basically used it as research. That's great.

I'm going to hire you, so why don't we have an interview?

All right. Yeah, and to be clear, it was completely genuine. We actually did end up hiring a chef. But we definitely— and we were open about it. So I don't believe in lying to people. But of course, we were both interviewing them and learning from them.

And I didn't mean to imply otherwise.

Apologies.

I think it's a great way, again, if you're going into a market and you need to hire someone, you know, it certainly doesn't hurt to interview more people and use it as customer development. But back to incentives, you had a second point, sorry.

The second thing I was going to say, which was about instructors actually, was that what we did also was we hired interns for free at the time, they were unpaid interns at the time, and we had interns cold emailing instructors. So they would go on the internet and they would find everyone who teaches art online and just go down the list and send an email, email, email, email, email. And so they'd be sending like 100 to 200 emails a day to potential instructors of geography, of technology education, of small business accounting, etc. We'd pick categories that we thought were successful and we'd have them email people. And you can do this with outsourced work in the Philippines as well, which is something that, you know, there are companies out there that have done very successfully. Or you can do this yourself. Manually, which is what I did too, so you can just cold email your potential customers en masse, but you need to do it at massive clip rates because your response rate on cold emails is super low, so you can't send 10—

Like 1 or 2% if you're lucky, right?

Yeah, 1 or 2% would be awesome. I mean, at Udemy the hit rate got really high, actually it got to like 25 to 30%, but that's only because we were already making like real money, so, and we had like a web presence, so you could Google us when you're doing it just for like, when it's completely random, but 1% is like, is very common. Let's talk about that because Ed has a question there about the web presence and he's like, what's the importance of SEO from day one and you know— Zero. Oh really?

Okay, and because he also asked should I spend on it or not or think about it, so you're saying SEO isn't important?

So it's very rare that I can think of one company right now that's built on SEO that's going to be a really big company, which is Thumbtack. But it's very, very rare for SEO to be a huge opportunity.

They launched at the Founders Showcase, by the way.

Yeah, they did. Yeah, and I've known them since I was in the Institute, basically. So I've known them for a really long time and seen that company from when—

Did you guys launch together, or were you— anyway, yes, so—

Around the same time. Yeah, around— We were raising our rounds around the same time. They raised about 6 months prior to us. And so anyway, so there are some businesses that are built on SEO as well, by the way. There are some that do— Script is not gonna— I mean, I love the opportunity for document sharing, but it didn't end up becoming the company that we all would like it to be. It might still, but that's important to recognize is that, you know, Thumbtack is, I think, one of the companies that not only is built on SEO, but also potentially could be a, you know, It is going to be a billion-dollar company, or it already is, I think, and it will be a multi-billion-dollar company, I think.

Pinterest is kind of SEO too, you could say. I find a lot of their images in my image search are on Pinterest.

Yeah, that's true, but that's not how it started, right? I'm talking about the foundation of the first few thousand users. I think SEO is huge, and at Udemy it's huge. When you get to your middle stage of your company, when you have development resources and you have lots of content, you should definitely be utilizing SEO, but we're talking about the early stages.

Fair enough, and well, let's jump that. It's a great segue then. You know, I know you— so let's talk about scaling customer acquisition in the last little bit. Guys, if you have additional questions, pop them in the chat, we'll try and get to them. But so now scaling and customer acquisition once you've got your first 100 or few hundred customers as B2C company, or a few dozen customers is a B2B. Where do you go from there? What are some tactics? Now I know that you were very concerned early on with your unit economics, right? So I don't know if you want to dive into that, but maybe we start with like, what are some quick advice once you have that first set of customers, what do you do next?

Yeah, great question. At this stage, what you need to do is start to figure out what is it that's really resonating for customers with your product, and how do you get them at larger scale. And that is usually still, like until you've raised a round or two of financing, probably even the Series A I would say, you really should not be spending a lot of paid acquisition dollars on this even then. You might do some, SEO might be big, but it's very company-specific. Most companies cannot do SEO effectively, it's just a small part of their business. Some companies like Thumbtack that have tons of content, just tons of content, can do SEO well. And Udemy too, Udemy has just a ton of content, Scribd as well of course. And so for the most part what you want to do is identify what is it that your customers are like, who are those personas, what types of people use your service regularly, and how do I find more of those people. So you then interview them, what do you do for a living? How do you find information on this subject? So if you're a website that helps people build projects online, right, you know, like Instructables or something, you try to find people who like to build things and you ask them, how do you find out about this right now? And in that case, you would find out that most of them Google search, which is where SEO comes in, right? So—

Well, it could be paid acquisition too.

Sure, yeah, of course, you can pay on— Google as well. SEO is a long-term bet, paid is a short-term bet. I mean, you can never become a really, really, really big company relying entirely on paid, but you can grow faster relying on SEO because it pays back. It basically, as soon as you build SEO, you have a new SEO tool or improve, optimize your SEO, you're just making that forever. You're banking that gain of new customers acquired. Whereas paid, you have to keep spending money, which kind of sucks.

Right, but back to, so now you've got these few hundred and you're speaking to one, he uses Google, or maybe they do something else. So you're saying just continue to speak to existing and potentially new customers and ask them what they do. So what do you do when you get into work and turn on your computer? What's the first thing that you look at? And just drive into where they're going?

Exactly, yeah, and it would just be context-specific, right? So if I'm interviewing them about Lyft, I usually ask people about their taxi habits and when do they need taxis and how often do they go around and do they bike, do they drive, what would make their difference between driving to work and biking. And then I ask them, how do you figure out how you're going to get from point A to point B, right? And you know, when is your need? And for example, with Lyft and Sprig, word of mouth ended up being the biggest thing. Like, the way that you figure out that you should use a taxi or a bike or a car is you have friends who do it. I mean, obviously you learn those things as a kid, but certainly for food, how do you find out about your favorite restaurant? It's usually from a friend. And so then I would do activities that were spot— that really boost referrals. So referrals was a big thing for Sprig, and still is. Almost all of our customer acquisition comes through word of mouth and referrals. Referrals. We do some paid advertising, but it's not a big percentage of our customer base. And so—

Can we drill into referrals for a minute?

Yeah, sure.

Okay, so both in B2C and B2B, maybe a little less in B2B, but referrals could be great, right? Depending on the level, the CEO isn't going to refer a competitive advantage to a competitor. But, you know, so how do you jumpstart referrals because that seems like a great and free, potentially free customer acquisition tool?

Yeah, it's a great question. I mean, you, again, it's very context specific but there's a ton— another thing, okay, actually this will answer your question better than anything else. One of the easiest ways to figure out how to acquire customers is to watch other people acquire customers online and copy them. So one of the things we do at Udemy, we did this brilliantly. My co-founders, we had no designer, and my co-founders are not talented designers. I mean, they're brilliant engineers, but they're not designers. We had no designers for the first 2 years of Udemy and built a pretty reasonable business with decent design, because what they would do is they would look on other websites and be like, "We need to do a commenting system. How does Facebook do comments?" And they would literally copy Facebook's comments. System, and then they would, you know, they would be like, "How do we do scheduling?" "Oh, what other companies need to do scheduling?" "Okay, it's a massage company needs to do scheduling or a company that, you know, that does scheduling for webinars or something," right? And so we would then look at that, look at the flow, analyze it, rip it apart, and take the top 10 flows that we liked and combine them, and you'd see Udemy's original designs were all just a hodgepodge of the top 10 websites in consumer internet basically. And so of course we had our own spin on it, but that's really common with growth as well. So I personally, for example, I don't subscribe to Adblock. To me Adblock is like the evil, it's like evil basically if you're a marketer, because first of all you should be in favor of advertising because you will eventually use advertising. But then second, on a less philosophical level, I watch everyone's ads. So if I see ads that I think are interesting, I'll click on them. And then I'll look at the landing page, and I'll analyze the landing page, and then I'll go through the landing page, I'll sign up for services, I'll figure out what the referral system is like, how are they engaging me. I sign up for my competitors and I see how they do it and I see which ones are the most successful and I figure out the ones that are most successful and copy that.

That's absolutely great advice. I've never heard that before and now that you say it I'm like, that's so obvious, like how come I've never thought of this. So yeah, like sign up for your competitors' services, like yeah, great, great point. And do you have like a dedicated email account for your like— competitor service sign up?

I mean, I probably should, but they haven't kicked me off yet, so we're in good shape. Yeah, and it's not just competitors. Competitors is actually the third tier of where I would go for knowledge on your company, because most likely if there are competitors that are really good, then you're probably too late to the market, and so your competitors are probably not very good, which means that you shouldn't copy them, you should learn from from them. So you should definitely watch them, because you should see what does work and copy it, or what you like and copy it, but it's your third criteria. Your first is going to be the best websites period, even though they have nothing to do with your service. So you heard me talk about Udemy and use Facebook, because Facebook was the best designed company, one of the best designs out there from a UX perspective, not necessarily from a UI perspective, but from a UX perspective. Look at Microsoft doesn't test their— and so I know Oh, that makes sure I fumito and whatever. So those are Whole Foods and Chipotle. And Lyft, it's taxis, so how do they get customers, right? Well, they peacock. They plaster yellow, they make their cars yellow, and they plaster advertising all over their own cars. Cars drive around the city, and all of a sudden you have advertising. So, oh my God, what if we could do that for passenger vehicles like Lift cars, therefore the pink mustache, right? And I'm not saying necessarily that they came up with the pink mustache— Is that really the origin of the pink mustache, by the way? No, it's not. But it's a great—

I mean, it is great.

But it's how you can come up with something like the pink mustache in a very methodical manner. John and Logan were just creative. John was a creative genius, and honestly just came up with the pink mustache as a way to disarm passengers when a driver was coming up to indicate that it was a fun, friendly car that you could get into and that you would have a— but the reality was that he understood that that was also a marketing tactic, and people can luck into these things, but it's much better to learn and dissect how they work so that you don't luck into them. One of the things that's made me successful as an entrepreneur is that I have relentlessly copied from other entrepreneurs. So I talked about the Thumbtack guys. Well, the Philippines strategy that I referred to earlier where you hire people, outsource labor in the Philippines to do mass emailing for you is entirely copied from Thumbtack. It's not copied actually in a bad way, it's I asked them for advice and said, "How do you do this?" and they taught me. And so it was willingly shared, right? And you know, that's true of a lot of things. So I also talk to industry experts and ask them how they do what they do and learn from them. And I think I'm, you know, it's just all about learning as fast as possible and copying is one of the best ways to learn.

Yeah, and I think so not only just go and sign up for different services, the best, you know, the things that are replacements and then your competitors, but also just asking people is, again, two sort of obvious things that, you know, I can tell you, you know, a lot of times the entrepreneurs that I work with, I'm like, how are you acquiring customers? And in fact, they should be doing the inverse. They'd be like, "Hideo, what have you seen that works to acquire customers? Why the hell am I asking them?" Right?

Totally, and this is where I'll drive the point home that I made earlier, like you have to check your ego. Remember that you are just one human in this world and you're not going to have all the answers, so ask lots of questions and get your answers from everyone else because you can learn from all these wonderful smart people in the world. It's crazy how many smart people there are on any given subject.

I mean, yourself and customer acquisition, for example. So any final— so we got lots of entrepreneurs here watching live and watching after the fact. Is there any like big closing thoughts you could say, you know, you're going out, you're building your business, maybe you have this concierge MVP Any final sort of closing thoughts on customer acquisition?

Yeah, I think that— oh, sorry, on customer acquisition specifically, and then I'll say something about entrepreneurship in general, I guess. But on customer acquisition, it's all about— it's still brass tacks marketing. Remember that at the end of the day, there's a human who is going to use your product. You need to learn everything about that person backwards and forwards. and then you need to figure out how to get under their skin and really get them to want your product. And that is really something people forget. They constantly do A/B tests and, you know, and paid acquisition and all these numbers-driven marketing things, which by the way, like, we're intensely analytical at Udemy and at Lyft and at Sprig. However, you need to remember that there's a human who's buying your product at the end of the day, and that human is who you're really speaking to, and the numbers merely provide you with context for that human and provide you with more indication of what that human will actually do versus what they say they'll do. But at the end of the day, it's about talking to real people and learning about them.

And the general point on entrepreneurship?

Yeah, I mean, I think the most interesting thing to me is how many entrepreneurs come up with ideas that are too small. And the more ambitious you are, I think it's amazing to me how much your ambition actually leads leads to success and not just the other way around. And so I would say, try to build a company that's going to make a major impact on the world, or go and join a company that's going to make a major impact on the world. You'll be much more successful doing that than you will be making a company that's small that sells for $2 million. You'd be surprised. If you're the type of person who can build a company that sells for $2 to $5 million, you're the type of person who probably should have joined a company and could have made $10 to $20 million by joining the right company at the right time.

Thinking big, it's great advice. Well, Gagan, I just want to say this was amazing. We covered a lot of things, a lot of learning, and I know like every entrepreneur that's written me, I've been like, attend this webinar to learn more about customer acquisition. So I'm going to give you a big round of applause.