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 market place 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 seehow exactly these various entrepreneurs made their first leap into the internet.
Several recurring themes include:
- Founders themselves being the first super usersto the point of absolute exhaustion
- Founders establishing personal connections withthe first core users
- Carefully crafting a non-monetary incentivesystem for rewarding the first people
- Using preliminary marketing campaigns tojumpstart initial traction
- Creating a viral loop or mechanism where oneuser drives other users through incentive
- Using analytics to capture user interactionswith the product to make essential business pivots
In the early days of Yelp, it was up to the founders tostart gaining momentum. According toJeremy Stoppelman, Co-founder of Yelp the best piece of advice he had forentrepreneurs starting out was, “Be ready to bleed for your cause”. Much of the first 1,000 reviews were createdby the employees with their friends and family. According to New York Times, “Yelp has paid people to write some of thereviews in cities it is entering.” It isa question that every startup has to deal with, and that is how you are goingto seed the initial data coming in. Yelphas not paid for reviews since it started out, but it did have to startsomewhere since the founders could not visit every city to do the reviewsthemselves.
The road of a startup isn’t always a huge success right outthe door, according to Jeremy in the first three months, Yelp got significantlyless traffic than the founders had expected:
“Priorto that, we felt like we were super geniuses. This idea was going to work. Wewouldn't tell anyone what it was. We were in stealth mode and we were justwaiting for that moment to open it up and let consumers stream in. The consumerreaction? Total flop. People came in. They tried to invite their friends. Theytried to ask questions looking for recommendations. Some of them got answersbut just not enough and it wasn't working. From the moment that we launched andstarted seeing the site not working as expected, it was huge let down. And infact, it was a real struggle to keep the team together. We had a lot ofturnover in that time period, but there was this one silver lining which wasjust a couple of days before launch literally as an afterthought. My co-founderRoss, peers over his monitor and says to me, "Should there be a way towrite a review without being asked a question?" And I literally... Iremember pondering it and thinking, "I don't think anyone's gonna ever usethis feature. No one's gonna write a review. Why don't you just bury it acouple 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 featurewithin the platform was the critical component that was a huge success. Having insights into these initial userinteractions and being able to take the appropriate action to iterate on theplatform is paramount.
Another action Yelp took in it’s early days was to createtheir “Yelp Elite” group for super-users. Yelp recognized that they needed a core group of users to driveacceptance, gain visibility and generate content. Originally, these users were invited toparties and other special events sponsored by Yelp. The incentive system eventually became primarilybased on rank and recognition and by no monetary means but little perks. Within Yelp there are several categories suchas reviews, firsts, events submitted, local photos and each sub section one canbecome “Elite” with the year displayed of when they obtained this status. Another incentive included “Review of theDay” where the reviewers profile would be displayed on the main page of theirwebsite.
In a two-sided market problem, the marketplace is only asvaluable as what it can provide to users, thus on day 0 nobody can conducttransactions, so how did Uber get started?
It would be incredibly difficult for Uber to start out on aworldwide marketplace. Keeping focuswith a small segment and growing from there is a much more logical approach sinceit requires a concentrated amount of drivers and riders to work. Although starting with a very specificlocation was also true with Yelp, for Uber this was an absolute must.
It the very beginning the founders decided split up theroles for the San Fransisco market, Co-founder Garrett Camp took the consumerside and Co-founder Travis Kalanick took the supply side. Travis picked up the phone and made coldcalls to black car drivers. By initiallystarting with the luxury cab service, they were able to ensure the level ofquality was good and that when people used the service they would say goodthings about Uber. According to TravisKalanick,
“Iwent to Google, typed in San Francisco chauffeur or San Francisco limousine, Ijust 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, afew of them would listen for like 45 seconds and then hung up, and three ofthem said 'I'm interested, let's meet.'. And if you're cold calling and threeout of ten say 'let's meet', you've got something.”
Once the supply acquisition funnel is seeded, it becomesmuch easier to address the other side of the market. Considering Garrett Camp previously soldStumbleUpon for $75 million, using his network and fame certainly made it mucheasier to acquire the first customers. From the beginning they believed in the strategy of providing a qualityservice that would spread through word of mouth; to this day this strategy isstill true and shown through their strategies.
In August 2010, Austin Geidt came on as an intern passingout flyers that nobody wanted and cold-calling drivers off of Yelp. Their strategies when launching became customtailored to each new city they enter. For example, in Boston they tookadvantage of the bus driver strike offering free rides. The hyper-local strategy always involved freerides during a critical time such as during the holidays, or event sponsorshipssuch as SXSW.
In San Francisco, what catapulted them into public consciousnesswas a cease-and-desist order by the San Francisco Municipal TransportationAgency and California Public Utilities Commission at which point they became acause celebre.
Another big thing Uber started doing was their viral loopreferral service. Every time you invitea friend, you get free rides/credits. The same is true for the supply side, drivers too have referralincentive.
The co-founders of Reddit didn’t actually even come up withthe idea for Reddit, Paul Graham did. The co-founders Alexis Ohanian and SteveHuffman’s original idea was to create “My Mobile Menu” – a mobile app thatwould let users place orders at restaurants ahead of time. This goes back to the concept that the teamis 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 entireidea. They agreed, and in June 2005 Alexis and Steve joined Y Combinator’sfirst class.
Paul discussed an idea for a website with them that wouldfilter out all the noise and give users the most shared links making it easier forusers to discover content. What theinternet needed was a “front page”, and this is what Y Combinator decided togive them $12,000 to build.
After building the website for only two weeks, Paul Grahamwas already pressuring them to launch saying it doesn’t need to be perfect. The first link ever posted was a story aboutthe Downing Street memo shared by Alexis, and downvoted by Steve. Paul then published an essay on hisinfluential personal website linking to Reddit which opened the floodgates tocriticism on Slashdot.
In the following weeks, Steve and Alexis scraped news sitesand created fake accounts to populate Reddit with links so visitors wouldn’tsee a stale page. They asked friends topost whatever they could. After a couplemonths of the two posting tirelessly, Steve noticed that there was new contenton the front page that hadn’t been posted by either him or Alexis. Steve said this was “the biggest turningpoint.”
Then after six months from their initial launch and muchheated discussion they introduced comments, which of course, the first commentposted criticized the company. Withinthe first year, Alexis had also taken it upon himself to promote Reddit byplacing stickers with the logo all over Boston and reaching out to members ofthe media which brought them some press by 2006, but Digg was still far beyondthem and was still the center focus of media attention in this space.
By spring 2006, they were beginning to get discouraged thatthe traffic was not there and they were considering selling the startup whilethey still could. In March, KouroshKarimkhany saw an article posted on Reddit that sparked his interest and foundthe website fascinating. Kourosh discoveredthe platform through his wife’s friend who was a writer at Wired. Kourosh was in chargeof mergers and acquisitions for the media giant Conde Nast where his mandatewas to find cool digital companies that could help Conde Nast Digitalgrow. He thought Reddit seemed promisingfrom its growing community, though Kourosh admits now he may have been fooledby 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 forcelebrity lifestyle news. By Oct. 31,2006 Conde Nast announced that it had acquired Reddit for an undisclosedsum. The acquisition sparked more newsand media attention which continued to drive traffic.
Each of these three companies studied has very differentbusiness models yet each shares common similarities such as the unrelenting sweatand legwork done by the founders. Thegrowth and traction building phase is certainly no easy task and often timesoverlooked during the initial product development stages. As mentioned at the beginning of thisarticle, new founders often think that all they need to do is build their geniusidea and they will instantaneously become a huge success. We can see that even the most successful companies struggled with thisproblem and it should be something where serious thought and considerationis put into. At the same time it is important to not get discouraged along theway as all startups face pain points on their road towards success.