In the second part of a series on growing startups, Thales S. Teixeira explains how Uber, Etsy and Airbnb have grown from a thousand customers to one million.
Thales S. Teixeira and Michael Blanding
Few companies have been more successful in recent years than Uber, Airbnb, and Etsy, who together have reshaped the way we organize a taxi, plan vacations, and buy handmade gifts. In a previous HBS Working Knowledge article, How Uber, Airbnb and Etsy attracted their first 1,000 customers. We examined how these two-sided platforms attracted a large number of users, based on an affair that Harvard Business School wrote with Morgan Brown.
«AIRBNB HAS NOW A CULTURE OF TESTS WITH PAYING CHARACTERISTICS ON ITS WEBSITE AND SATISFACTION OF THE FEEDBACK OF ITS LOYAL AND TALKING CUSTOMERS»
As impressive as it is, 1,000 customers are barely enough to be successful in the long term. As a result, these companies have grown significantly from 1,000 to more than one million, which is the subject of a case study by Teixeira and Brown.
Importantly, the strategies that have enabled these companies to succeed are not the same as taking them to the next level.
To get from zero to 1,000 customers, the three start-ups had to deal with a chicken egg problem: How could they attract suppliers without users? For example, how could Uber recruit drivers with just a few customers while attracting customers if there were no drivers? How could Airbnb convince potential tenants to get onto their platform without an extensive catalog of accommodation?
Platform companies such as Airbnb and Uber can evolve fast with affordable technology and networked providers. Credit: Anton Matveev
To overcome these difficulties, start-ups have followed similar strategies, concentrating mainly on supply rather than demand.
In addition, they worked hard to find the first customers by connecting them “by hand” with the first suppliers (for example, Etsy searched the craft fairs to register with craftsmen); acquire in large quantities (Uber has organized promotions at concerts and events); and did everything necessary to make their offers attractive, even if they were not scalable (Airbnb hired professional photographers to take inviting photos of guests’ apartments).
As a result of these guidelines, they were able to gradually improve their products and find out what made them feel the most at customers and suppliers. Only then was a possibility introduced that required a gradual – not brutal – transition from supply to demand.
Rely on the first 1000
After more than 1,000 customers, organic opportunities for companies to acquire more customers and suppliers have become increasingly rare. Uber and Airbnb have turned to digital marketing to reach new people. Unlike traditional commercials such as local TV commercials or print ads, which are expensive and time-consuming, paid digital media such as Google Search Ads, Facebook Ads, and YouTube Video Ads offer many benefits.
The low installation cost allows businesses to start advertising for just $ 10 a day. specific targeting – on specific demographics or life events such as birthdays or similarities with current customers; short development time and ad serving in minutes; and ease of experimenting.
Given all these factors, a start-up can create dozens of ads in a matter of days and learn quickly and cost effectively, which most effectively attracts suppliers.
Uber, for example, has frequently used online advertising on various social media platforms to recruit more drivers. He created a model to understand and identify the factors that led individuals to register as Uber drivers. Were you a part-time employee? Do you have a car? Were they in low-wage cities or cities with high unemployment? (Considering his extensive driver data, Uber is probably as well informed about low paid workers as the US Department of Labor.)
By gathering this information, Uber used online advertising to identify the right drivers.
Etsy followed another track. Instead of commercializing via digital media, advertisers can use it to advertise. To this end, she helped sellers market their products and, in turn, marketed the Etsy platform to their loyal customers. Etsy has developed a Vendor Manual and other internal vendor management tools to better manage orders and stay in touch with customers through integrated social media. In the end, Etsy has created an ecosystem of more than 150 third-party applications and tools to empower and support vendors.
Switch from offer to demand
As these platforms began to attract new customers using digital marketing and social media, these customers began to behave differently than the early users who were acquired wholesale or by word of mouth. In particular, they did not award lower quality goods and services and were unwilling to pay high prices for substandard products.
In order to retain these new customers, the platform entrepreneurs needed to understand their needs and desires and differentiate their offer from those in the market. An obvious way to do that was to ask customers what they wanted. As Joe Gebbia, co-founder of Airbnb, said, “People told us what they wanted, so we went to do it for them.”
Airbnb has maintained a feature-rich test culture on its website and received feedback from its most loyal and accomplished customers. What The Airbnb Team Learned: When you provide a channel and listen, people will tell you what they want. But to get that a second time, you have to respond quickly to your previous requests.
Very quickly, they learned that cleanliness was important, so a cleaning and laundry program was created to help guests. It turned out that trust was another problem and Airbnb Social Connections was introduced, using social graphs from customers via Facebook Connect, so that guests no longer remain anonymous. Finally, they realized that the price was important. They focused on growing in cities with expensive hotel rooms, where guests could charge 30 to 80% less than hotels in the same area.
Although this type of direct feedback helped Airbnb define its offer, it was not enough for Gebbia and co-founder Brian Chesky. To discover more opportunities for improvement, they made the unusual gesture of using their own services, imagining a perfect experience and working backwards to see what needed to be changed to meet that vision.
These two ways – asking customers what they wanted and building it, taking the perfect experience into account and creating it back – are not a decision. As the experience of Airbnb shows, both approaches must be pursued together.
Write a Market Extension Playbook
By focusing first on the supply side and then on demand, the three platforms gained ground in the markets where they were initially present. At that point in time, however, they made a critical decision in the life of every platform company: where and how should it grow? Few startups have answered this question better than Uber, who has accelerated their activity very quickly.
After demonstrating the original business model in San Francisco and New York, the founders of Uber realized they needed to understand the “accelerators” to choose their next target cities, which served as straightforward winds to accelerate customer adoption. in a particular region. In analyzing their successes, they distilled some of them, including the density of restaurants and nightlife, the destination of vacations and events, the availability of strong sports franchises and inclement weather.
All these factors created a steady stream of people who went out at night with friends or attended concerts and sporting events and wanted to avoid parking or taxi problems on a rainy night. Snow. This was the case for Chicago – a city of vibrant nightlife, intense weather and countless sporting events – where Uber’s viral growth was twice that of other cities.
These accelerators became the basis of Uber’s market expansion book and were some of the factors taken into account when launching new websites. Travis Kalanick, CEO, explains, “Once a platform has found a formula that works, it must create principles, catalysts, and a to-do list to transfer the formula to the managers it recruits in different regions “His advice to startups: Make this playbook as soon as possible.
Stay away from what worked
Switching from zero customers to 1,000 customers can be a slow process for platforms as suppliers and customers of products and services need to be balanced. On the other hand, the transition from 1,000 to 1 million people can be fast, but only if companies are willing to change the tactics to try something new. Strategies that encourage early users to join are fundamentally different from those needed to develop the platform.
The hardest decision for a growing start-up is when the proven measures are abandoned in order to be successful in the future. Failure to do so at the right time can significantly reduce the company’s momentum. On the other hand, the courage to change in favor of new marketing strategies can make a company successful in the long term and position itself for even more growth.