So often we see that once people build their apps they have this philosophy that if they build it people will come. As much as we would love for this to be true, it is wishful thinking. Especially if they created a marketplace or some sort of app which requires many people coming on the system all at once before the system becomes valuable. This is different than a system where each piece of content provides additional incremental value which requires building a repository before release.
Within this post we will examine various case studies to see how exactly these various entrepreneurs made their first leap into the internet.
Several recurring themes include:
- Founders themselves being the first super users to the point of absolute exhaustion
- Founders establishing personal connections with the first core users
- Carefully crafting a non-monetary incentive system for rewarding the first people
- Using preliminary marketing campaigns to jumpstart initial traction
- Creating a viral loop or mechanism where one user drives other users through incentive
- Using analytics to capture user interactions with the product to make essential business pivots
In the early days of Yelp, it was up to the founders to start gaining momentum. According to Jeremy Stoppelman, Co-founder of Yelp the best piece of advice he had for entrepreneurs starting out was, “Be ready to bleed for your cause”. Much of the first 1,000 reviews were created by the employees with their friends and family. According to New York Times, “Yelp has paid people to write some of the reviews in cities it is entering.” It is a question that every startup has to deal with, and that is how you are going to seed the initial data coming in. Yelp has not paid for reviews since it started out, but it did have to start somewhere since the founders could not visit every city to do the reviews themselves.
The road of a startup isn’t always a huge success right out the door, according to Jeremy in the first three months, Yelp got significantly less traffic than the founders had expected:
“Prior to that, we felt like we were super geniuses. This idea was going to work. We wouldn't tell anyone what it was. We were in stealth mode and we were just waiting for that moment to open it up and let consumers stream in. The consumer reaction? Total flop. People came in. They tried to invite their friends. They tried to ask questions looking for recommendations. Some of them got answers but just not enough and it wasn't working. From the moment that we launched and started seeing the site not working as expected, it was huge let down. And in fact, it was a real struggle to keep the team together. We had a lot of turnover in that time period, but there was this one silver lining which was just a couple of days before launch literally as an afterthought. My co-founder Ross, peers over his monitor and says to me, "Should there be a way to write a review without being asked a question?" And I literally... I remember pondering it and thinking, "I don't think anyone's gonna ever use this feature. No one's gonna write a review. Why don't you just bury it a couple pages deep. Just throw it in there somewhere." And lo and behold, that ended up being the saving grace of the whole thing.”
It ended up being the case that a somewhat hidden feature within the platform was the critical component that was a huge success. Having insights into these initial user interactions and being able to take the appropriate action to iterate on the platform is paramount.
Another action Yelp took in it’s early days was to create their “Yelp Elite” group for super-users. Yelp recognized that they needed a core group of users to drive acceptance, gain visibility and generate content. Originally, these users were invited to parties and other special events sponsored by Yelp. The incentive system eventually became primarily based on rank and recognition and by no monetary means but little perks. Within Yelp there are several categories such as reviews, firsts, events submitted, local photos and each sub section one can become “Elite” with the year displayed of when they obtained this status. Another incentive included “Review of the Day” where the reviewers profile would be displayed on the main page of their website.
In a two-sided market problem, the marketplace is only as valuable as what it can provide to users, thus on day 0 nobody can conduct transactions, so how did Uber get started?
It would be incredibly difficult for Uber to start out on a worldwide marketplace. Keeping focus with a small segment and growing from there is a much more logical approach since it requires a concentrated amount of drivers and riders to work. Although starting with a very specific location was also true with Yelp, for Uber this was an absolute must.
It the very beginning the founders decided split up the roles for the San Fransisco market, Co-founder Garrett Camp took the consumer side and Co-founder Travis Kalanick took the supply side. Travis picked up the phone and made cold calls to black car drivers. By initially starting with the luxury cab service, they were able to ensure the level of quality was good and that when people used the service they would say good things about Uber. According to Travis Kalanick,
“I went to Google, typed in San Francisco chauffeur or San Francisco limousine, I just filled out an excel sheet and I just started dialing for dollars, right? First ten guys I called, three of them hung up before I got a few words out, a few of them would listen for like 45 seconds and then hung up, and three of them said 'I'm interested, let's meet.'. And if you're cold calling and three out of ten say 'let's meet', you've got something.”
Once the supply acquisition funnel is seeded, it becomes much easier to address the other side of the market. Considering Garrett Camp previously sold StumbleUpon for $75 million, using his network and fame certainly made it much easier to acquire the first customers. From the beginning they believed in the strategy of providing a quality service that would spread through word of mouth; to this day this strategy is still true and shown through their strategies.
In August 2010, Austin Geidt came on as an intern passing out flyers that nobody wanted and cold-calling drivers off of Yelp. Their strategies when launching became custom tailored to each new city they enter. For example, in Boston they took advantage of the bus driver strike offering free rides. The hyper-local strategy always involved free rides during a critical time such as during the holidays, or event sponsorships such as SXSW.
In San Francisco, what catapulted them into public consciousness was a cease-and-desist order by the San Francisco Municipal Transportation Agency and California Public Utilities Commission at which point they became a cause celebre.
Another big thing Uber started doing was their viral loop referral service. Every time you invite a friend, you get free rides/credits. The same is true for the supply side, drivers too have referral incentive.
The co-founders of Reddit didn’t actually even come up with the idea for Reddit, Paul Graham did. The co-founders Alexis Ohanian and Steve Huffman’s original idea was to create “My Mobile Menu” – a mobile app that would let users place orders at restaurants ahead of time. This goes back to the concept that the team is more important than the idea – My Mobile Menu has NOTHING to do with Reddit. Y Combinator basically told them they can only join if they scrap their entire idea. They agreed, and in June 2005 Alexis and Steve joined Y Combinator’s first class.
Paul discussed an idea for a website with them that would filter out all the noise and give users the most shared links making it easier for users to discover content. What the internet needed was a “front page”, and this is what Y Combinator decided to give them $12,000 to build.
After building the website for only two weeks, Paul Graham was already pressuring them to launch saying it doesn’t need to be perfect. The first link ever posted was a story about the Downing Street memo shared by Alexis, and downvoted by Steve. Paul then published an essay on his influential personal website linking to Reddit which opened the floodgates to criticism on Slashdot.
In the following weeks, Steve and Alexis scraped news sites and created fake accounts to populate Reddit with links so visitors wouldn’t see a stale page. They asked friends to post whatever they could. After a couple months of the two posting tirelessly, Steve noticed that there was new content on the front page that hadn’t been posted by either him or Alexis. Steve said this was “the biggest turning point.”
Then after six months from their initial launch and much heated discussion they introduced comments, which of course, the first comment posted criticized the company. Within the first year, Alexis had also taken it upon himself to promote Reddit by placing stickers with the logo all over Boston and reaching out to members of the media which brought them some press by 2006, but Digg was still far beyond them and was still the center focus of media attention in this space.
By spring 2006, they were beginning to get discouraged that the traffic was not there and they were considering selling the startup while they still could. In March, Kourosh Karimkhany saw an article posted on Reddit that sparked his interest and found the website fascinating. Kourosh discovered the platform through his wife’s friend who was a writer at Wired. Kourosh was in charge of mergers and acquisitions for the media giant Conde Nast where his mandate was to find cool digital companies that could help Conde Nast Digital grow. He thought Reddit seemed promising from its growing community, though Kourosh admits now he may have been fooled by the fake accounts.
Eventually, Conde Nast offered Reddit a licensing deal for $10,000 a month to turn one of their domains, Lipstick.com into a Reddit for celebrity lifestyle news. By Oct. 31, 2006 Conde Nast announced that it had acquired Reddit for an undisclosed sum. The acquisition sparked more news and media attention which continued to drive traffic.
Each of these three companies studied has very different business models yet each shares common similarities such as the unrelenting sweat and legwork done by the founders. The growth and traction building phase is certainly no easy task and often times overlooked during the initial product development stages. As mentioned at the beginning of this article, new founders often think that all they need to do is build their genius idea and they will instantaneously become a huge success. We can see that even the most successful companies struggled with this problem and it should be something where serious thought and consideration is put into. At the same time it is important to not get discouraged along the way as all startups face pain points on their road towards success.