I regularly speak with startups at Seedcamp, and elsewhere, about how to engage with customers in the early stages of defining your product. There are a number of tried-and-true techniques that I have written about previously, but one method that a lot of startups have been using lately is the Customer Council.
Why is this a good idea? For at least two reasons.
A Customer Council is pretty much what it sounds like, a group of people who are actual or potential consumers of your product, who are willing to give you advice in your early stages. Typically, it’s because they are early adopters and love what you do, and will do it out of the goodness of their heart (think open-source). Customer Council isn’t the method of interacting with them, but rather the group that you can lean on ongoing. Since you’re in really early stages, this type of qualitative feedback, even if somewhat biased, will be valuable to you.
Here’s the advice I typically have given;
Credit where credit is due, read on to see what some of our startups have learned individually! Massive thanks to Vas, James, Richard, Charlotte, and all their teams, for sharing. Deeper thoughts on these topics can be garnered from Marty and Tomer . For more on Product, visit the index at http://seedcamp.com/eir-product-articles/
Splittable Housemate Council
Splittable is an app for tracking & managing shared expenses (more…)
Cathy White, Communications and Marketing Manager at Seedcamp, has written this piece on PR hacks that early-stage companies can use to get attention while bootstrapping.
I’ve always been a firm believer in not using a PR agency as an early-stage company. Great agencies are expensive and when you’re at the beginning of your startup journey every penny should be used on your product and in attracting the best team possible.
Agencies want to be working with startups because they’re sexy. Working directly with a Founder is an exciting prospect and being able to play a part in their growth is hugely attractive to PRs.
However, it is rarely a healthy relationship. In my own experience, agencies will cut corners where possible to shrink a budget down to a size that a startup can afford, whilst still working the hours usually given to much larger, long-standing accounts. I’ve had my fair share of bending over backwards to line up great coverage, but in the end, it’s not up to the expectation of the startup and what counts as a small budget for an agency (often leaving them out of pocket) is a huge chunk of change for the Founder. The result is an agency that is exhausted and frustrated and a startup that has a negative experience of PR – not great for any potential partner in the future.
Agencies typically make sense when you’ve had a large seed round or your Series A. Of course, there are exceptions to the rule, but generally speaking, my advice is to build out your own basic PR strategy in the beginning.
PR isn’t just about getting your company name in an exciting title. It’s anything public facing.
It connects with your social strategy, how you speak about yourself, how you communicate to your community, as well as your customer. It isn’t something fluffy that you think about last minute. Unfortunately, it also doesn’t come with a guarantee. With all the best strategic planning in the world, sometimes it just doesn’t work. But, like building your company, you can pivot. You can change your strategy and there are little ways of measuring its success. It must drive results, and as a startup, you can afford to experiment.
I’ve often spoken about why you don’t need an agency, and in doing so, provide a few hacks learnt from my own background that enable you to build and execute a basic PR plan.
Where do you want to be? Set your objective for PR. Do you want to attract 10,000 new customers? Do you want attention from prospective investors? Do you want to be the first to market? What you want to achieve determines where you need to be seen. If you start at the end, you can breakdown the research you need to do.
If you want 10,000 new customers, who are they? What do they read? Setting a goal will enable you to address these key questions before researching further. For instance, getting covered in The Telegraph might look good from the outset – great title, huge reach – but if your target customer is a millennial, it’s not really relevant! You want to ensure that the PR you do is likely to drive a return on the investment of your time.
Starting from the end helps determine how to measure the success of your PR campaign. If it’s customers, simple app downloads that peak when coverage is out are a strong indication. Awareness can be measured by keeping an eye on your Google analytics and mentions online, and for getting investment, a simple invitation to a meeting will do the trick.
Once you’ve determined who your audience is, you need to start reading what they read. Most publications will provide a breakdown of their audiences in an advertising section. Spend 15-20 minutes a day skimming through the publications you recognise as being connected with your audience. Any stories that relate to what you’re doing, should be collected in a spreadsheet. Note down which publication, who the journalist was, the date it was published, a quick summary of the article – 140-character Twitter style being ideal – and a link. If you’re not sure what your customer reads, ask them – a simple survey is all it takes.
Over time, you’ll know who your go-to journalists and publications are, what stories work, which profile opportunities fit you, and how often they write. Emails and Twitter handles are easily found online, and when you come to pitch them, you’ll be able to add context and open up a real conversation, rather than an email that blends in with the rest of their inbox.
Another great tool is to set up Google Alerts for all your key competitors. Have a look at where they are being covered and why. Pitch the journalists they talk to, and show them why you’re different. Or use Flipboard to stay in the know on the go, and use those minutes of downtime on your commute to scan the news.
Research will play a key part in learning what a story really is. You are rarely the story. You need a news hook and to remain factual at all times. Hooks could be fundraising, product launches (very tricky to announce unless you’re Apple), insightful data that you’ve gathered through your service, a campaign you’re starting or international expansion. Regardless of the hook, you need to be able to talk big picture. Why is it important? What does this tell us about the market in five year’s time? What are you “disrupting”? Think big, and think bold. As a startup you don’t have to watch every word you say like a huge public company – so have a bit of fun!
Mike Butcher, Editor-at-Large of Techcrunch Europe, wrote this article last year on how to pitch him. Mike believes the press release is dead – I disagree, (I’m a flack) but this article does provide a long list of questions that you should definitely be able to answer. It’s a great exercise to go through this list and fill out your responses. It will help you shape your story and pull out key angles to use for each publication you pitch.
A press release should give a journalist all the information they need to write your basic story. But you must be able to offer more. Provide them with interviews, customer case studies, images, off-record information etc. whatever it takes for them to get the one angle that works well for their audience.
If you can pitch to investors, you can pitch to journalists. Just change the way you do it. For tips on storytelling check out this article by Seedcamp’s Reshma.
It’s best to contact journalists over email, through Twitter, a direct introduction (talk to your fellow Founders) and, if you’re feeling brave, over the phone. A journalist is bombarded with information and pitches daily and only has the capacity to write a few stories. So make sure your subject line stands out, that you keep your email pitch brief and engaging, and provide the right context. If you do your research, you can reference previous articles they have written and how your company ties in. Once you’ve pitched once, give them some breathing space. It’s ok to follow up a few times, but not within five minutes, and after a few days of quiet, even with some nudging, move on. They’re just not that into you.
Once you know your story is going to land, and the coverage is expected, think seriously about how you can make the most of it. Shout about it on your social channels, email your network, pull out quotes to use on your website, even put a link to the articles in your email signature.
We are all constantly surrounded by information, and that one stand-out piece of news will have a short life span, so think about how you can pro-long its life and get more for your time investment. You may see a peak of interest over a 12-hour period, which then dies. You have to build out a sustainability plan to make sure you achieve that end goal.
Then think even longer-term. At this stage, you should know a few journalists and have a list of publications that still haven’t covered you. Keep them updated on what you’re up to. Take them for a beer. Build that relationship and help them in anyway possible, it will pay off for you in the future – think of this as press karma.
The last and most crucial piece of advice for hacking your PR strategy together is to be nice, be helpful and be authentic. It sounds so simple, but treat others how you’d like to be treated. The job of a journalist can be tough and demanding, so help them out by being that one contact that can bring a smile to their face and you’ll be remembered for all the right reasons.
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Seedcamp Partner, Carlos Espinal, has written this piece focusing on how to show growth and traction for early-stage startups looking for investment, with key contributions from our Experts in Residence Scott Sage and Keith Wallington, and Jeff Lynn, CEO of Seedrs.
As an early-stage startup trying to fundraise, you’ll likely have to tell a version of your company’s story that demonstrates high likelihood of growth to attract an investor. Which are the stories that are most commonly used during the early stages of a business, and which ones later on?
In this post, we’ll cover the various forms of ‘validation & traction’ that you can potentially leverage in conversations with potential future investors as well as to create internal benchmarks for you and your team.
If we look back at this topic as a form of storytelling, below are the ’stories’ I hear the most (alone or multiple at once):
In previous blog posts, I’ve covered what makes an amazing team and how investors evaluate a team, what Tier an investor is in and how other investors might judge who is in your round. In this one, I want to focus on 4 and 5 of the list above. Basically, understanding when you have any kind of traction and what constitutes ‘impressive’ for the average investor.
One way of trying to benchmark what is ‘impressive’ is by looking at some companies that are generally considered to have done extremely well. In this Quora post, we can see a few of the companies often referred to as ‘impressive’:
Weekly Revenue Growth
However, as impressive as they are, these numbers don’t show the entire story. They hide various operational and industry dynamics that are only possible in the sectors in which those companies operate. For example, the cost of acquisition and the sales cycle for each of these businesses might be drastically different than yours. Looking at these figures as a 1:1 to what you have to achieve might create an insecurity complex and frustrating unit economics. Effectively, you can’t compare oranges with apples. They’re impressive for sure, but are they applicable to your company and is it realistic for you to sustain those kinds of numbers in the long term?
Whilst the above point might seem self-evident for extreme cases, I’m always surprised by what I hear some founders receive as feedback from investors when being compared to idealized growth cases.
Let’s kick things off with the easiest form of growth to talk about, user-growth in any kind of network effect business where monetization is not the immediate short-term goal. The most typical example will be social networks.
These kinds of companies are the ones that are the most referenced to when looking for ridiculous growth rates. Facebook and Twitter in their early days are good examples. However, before we get into what kind of week-on-week growth is impressive, let’s tackle one very big point that makes any growth meaningful.
If the business’s successful growth allows it to have lock-in effect, then a non-monetized growth strategy early-on makes sense as a way to monopolize the customer-base and once locked-in, monetization strategies can be considered without fearing user-growth-rate loss and churn to competitors and/or substitutes.
Not all businesses that embark on a non-monetized high user-growth rate strategy truly have lock-in capabilities so it is not unusual to have these be the ones most investors are less interested in. If there is any risk that you might fall into this category, start thinking about what could make your user-growth rate create a lock-in that no competitor could make you lose.
For these kinds of businesses where user growth rates are what is being used as a proxy for future revenue, a 6-10% week-on-week growth rate will be considered as impressive. Above 10% week-on-week would be considered as boss-level growth, as can be seen from Facebook or other companies mentioned in the Quora post above. Only a few companies frequently achieve these levels. Other impressive growth rates from companies falling into this category can be seen here.
Once a company decides it needs to be charging early-on because its product doesn’t have a network effect built-in (or where there are plenty of substitutes in their market), one can expect the company to be measured by a different set of growth rate standards. Although there are always exceptions, once money is involved, things get more complicated.
There are several factors that can generate a different set of growth rates, with the main ones being:
Sales cycles can vary greatly from business-to-business and can serve as a proxy for sales growth until you actually materialize sales. If you want a quick brief on sales cycles, this link will walk you through the basics.
Comparing growth rates of monetized companies becomes complicated because not all of them have the same sales cycles. We’re back to our orange to apple comparison dilemma. Some might have a heftier cost of customer acquisition but can sell immediately (such as software download), while others might require a subscription once someone deems the relationship with the service worthwhile (such as dating sites) but might be able to leverage virality effects intrinsic to their sector or customers’ needs/desires to lower their cost of acquisition. Life isn’t fair, but let’s try and see how we can compare businesses in these categories.
Let’s first start by looking at companies that have a long sales cycle. These companies might have interactions with their customers via newsletters, social media, click-throughs etc. but can have frustratingly low month-on-month growth rates on conversion. For those, a good starting point as a proxy for growth is to have engaging discussions really early on about the value you bring to your customers so you can use it as a proxy to the actual (and hopefully, eventual) conversion point. Try and find correlations between behavior and interactions with your product as a precursor to conversion between marketing initiatives (content marketing reads, etc.). This isn’t easy or pretty, but having nothing to speak about on why your early customer might care is likely unacceptable. This also helps to think about what kind of ‘features’ you can build into your product that can signal the intent of conversion in the future. For example, does adding things into a wish list you’ve created for customers increase conversion once key dates in the year come around (holidays or birthday).
As a software company, you should not get caught in the sales funnel trap. Too many startups equate growth to how many deal leads are being added to the sales funnel every week. Adding X% new business to your pipeline every week is great, but if the output — closed deals — is close to nil and not growing, you have a serious problem. If you and your team are able to convert your top of the funnel demand into an efficient sales process and close deals, well done. But if you’re like most startups, you will have inexperienced people adding every possible deal lead in the world into the sales pipeline without knowing 1) how to qualify those deals or 2) whether they even fit what a typical buyer looks like.
So, how should we think about traction from the standpoint of a software startup and their sales cycle? One important note to make is that the range of pricing varies greatly. A startup selling $100k enterprise deals will have a longer and more complicated sales cycle than a startup selling a $5k deal that may not require the board’s or your CFO’s sign-off. Investors want to see consistency in your sales execution. If you were able to close nine deals in the first quarter of focusing on sales, then they will want to see at least nine deals in the next quarter. The more deals your team closes, the better they get at qualifying opportunities, pushing the sale through, and understanding where various customers receive the most value from your product. Once you have a good idea of what your sales cycle looks like, then you should be able to shorten the cycle and in theory, close more deals faster with the same team.
At a high level for SaaS businesses, investors want to see an absolute minimum of 100% growth year-over-year. Assuming your sales and marketing team and costs stay the same from one year to the next, investors will expect you to retain a very high proportion of customers from the first year (let’s assume for simplicity you’re able to keep 100% of the revenue from year one’s customers by retaining 90% and up-sell another 10%). Then with the same team, you should be able to acquire the same number of customers with roughly the same size of contracts. So Y1’s recurring bookings + Y2’s new bookings = 2x Y1’s first year’s bookings.
Aside from Sales Cycles, there are other limitations that can create an artificial restriction on growth rates in early-stage companies, which make it unfair to compare companies like for like. Two examples include marketplace supply and demand balance, and operational limitations, which when optimized, lead to increased demand.
Various successful marketplaces have used a number of strategies to capture a market and grow, but all share a common pattern, which was to start from the supply.
Shutterstock, Founded 2003
Airbnb, Founded 2008
Etsy, Founded 2005
Quibb, Founded 2013
What investors look for in online marketplace businesses: growth metrics
Summary Table for how to think of where your company’s economic opportunities are
So, we’ve covered quite a bit of ground on user growth rates, sales cycles, marketplaces and the like, but how about for businesses where there might need to be some stockpiling of inventory first before going out to the market, or perhaps R&D and progress therein, before being able to announce/launch a product, or how about ones that are just getting better and better in their internal processes and waiting for the next inflection point in demand to really scale up after a fund raise?
For now, let’s focus on the optimization of production costs that are already existing in order to better demonstrate your company’s growth in preparation for a fundraising.
Optimizing production costs leads to unlocking the ability to service more customers and, therefore, to grow faster. Until fully optimized, you will be limited not by user interest, but rather by operational limitations. Week-on-week or month-on-month growth could, therefore, be pegged to operational improvements.
A number of operational blockades will need to be overcome throughout the customer journey:
Can start manually going through a human collection of leads such as contact details etc. and is appropriate for early-stage customer validation. The process must be automated or other lead sources secured to ensure marketing can deliver a growing volume of appropriate leads into the customer acquisition funnel.
Might be limited by the number of meetings each sales person can schedule and attend in a week/month- solution: study the sales funnel and automate where you can, improve use of CRM, evolve marketing lead qualifications and nurturing processes to deliver better-qualified leads to sales such that the customer is more progressed towards a purchase by the time they are handed to sales. Adding more sales people without optimizing these other pieces will likely see CAC not improving as the business grows
Manually onboarding and supporting customers is ok in early customer validation phase but must be automated to the maximum appropriate degree without destroying customer experience to avoid a bottleneck. Often an automated onboarding and support experience (with good monitoring, alerting and access to help) can improve customer experience as they can work at their own pace and not need to fit into a schedule
Process innovation by reducing issues internally and unlocking a new rate of growth. Marketplace growth requires balanced growth and should result in week-on-week growth.
In conclusion, there are many variables that can be used to determine a company’s growth and traction ‘by proxy’. In a recent chat with Jeff Lynn, founder of Seedrs, he said “the appropriate unit of time to measure a business’s growth varies from company to company. One of the things we’ve found with Seedrs is that month-on-month growth rates aren’t particularly helpful because we’re too spiky in terms of monthly transaction levels. When we look at month-on-month, one month we’re over the moon because we’ve grown 200% over the previous month, and then the next month we’re in despair because we’ve shrunk by 50%. We’ve now moved to measuring everything on a quarter-by-quarter basis — even that isn’t perfect, and our real cadence is more like six months, but we’ve had to balance that against the need to iterate and adapt quickly enough (although in our Series A fundraising materials, we should everything on a six-monthly basis, and it worked just fine).”
Hopefully, this post has given you a new way of looking at some potential ways for you to start tracking growth in your company to create a more compelling case for future investors.
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