RBCx and Highline Beta co-hosted a lively panel discussion for startups on product-market fit and how to get those crucial first customers. Five seasoned founders shared their insights and best practices.
For first-time founders, learning as you go is a fundamental part of the job and there’s certainly no shortage of information on how to drive a startup to success. While there is clear consensus on the importance of finding product-market fit and acquiring your first customers, ideas on how to achieve them can be varied, even conflicting.
We turned to five seasoned founders with serious chops in the startup ecosystem to share their expertise on these topics at our recent RBCx event co-hosted with corporate venture studio and VC firm, Highline Beta, with dinner provided by startup Hungerhub.
The panel included Ben Yoskovitz, founding partner at Highline Beta, serial entrepreneur and co-founder Shari Hughson, and Morley Ivers, CEO and co-founder of Cookin, moderated by Sari Abdo CEO and co-founder of Hungerhub and Arron Lin, Associate VP Banking, RBCx.
The lively discussion was peppered with inspiring anecdotes, no-nonsense advice, and best practices for startups in various stages of their lifecycle. If you missed it (or want a refresh), here’s what was shared in the presentation:
Signs of product-market fit: organic sales and good economics
(from left to right) Arron Lin (RBCx), Shari Hughson (Cookin), Morley Ivers (Cookin) and Ben Yoskovitz (Highline Beta).
One of the first signs that a startup is close to achieving product-market fit is when sales come in organically rather than through rigorous marketing efforts. Shari knew her first startup, a service-driven home healthcare company, had reached product-market fit when sales grew from one or two clients in a seniors retirement home to getting 10 every week, to acquiring 80 per cent of the clients in the home.
Founders will feel a definite shift—from pushing for every sale to the sales rolling in.
“The sales that I’m searching for and converting are hard work,” says Shari. “I know I have product-market fit when someone is telling someone else to come and buy, and they do.” Founders will feel a definite shift—from pushing for every sale to the sales rolling in. “You’ll know it. And, you’d better be ready.”
Founders should be cautious in declaring market fit too early, however. Along with that growth in sales, the company’s economics need to make sense.
“You can run into the trap of putting more and more capital into a startup that keeps the company growing,” says Ben. “But if the math never makes sense, it will collapse, whether because customer acquisition costs too much, they don’t stick around long enough, or any other reason.”
Today’s economic climate has investors raising the bar on everything, including their definition of product-market fit. Ben advises startups to adopt the same higher standards: “it’s not easy to get there, even if you feel that pull.”
For a marketplace business, such as Cookin, the value proposition requires buy-in from two major stakeholders: the cooks and the customers. Morley knew they had something special when there was a pattern of talented cooks approaching them with tears in their eyes, describing how the Cookin platform transformed their earning potential.
For the customer side of the business, it was during a walk through his neighbourhood that Morley realized they’d crossed that threshold from push to pull. “I was walking down the street on recycling day and seeing multiple homes with Cookin bags in their clear recycling bags,” he says. “Home after home was enjoying Cookin.”
“We had a 56 per cent return rate of people coming back time and again and we came up with a magic number—three. If someone purchased from Cookin three times, 60 per cent of those customers would return every week.”
As a data-driven company, Cookin looked at more than the qualitative experiences for proof that the company was experiencing a shift in product-market fit. Before being funded, he says, “We had a 56 per cent return rate of people coming back time and again and we came up with a magic number—three. If someone purchased from Cookin three times, 60 per cent of those customers would return every week.”
It was a signal they could start referral programs and partnerships, add sophisticated tools, and raise capital. Even still, Morley is quick to add, “I don’t ever rest on laurels and feel fantastic.”
Acquiring your first customers shouldn’t be complicated
RBCx and Highline Beta co-hosted a panel discussion on product-market fit and how to get those crucial first customers.
Getting early adopters is instrumental for startups to drive growth and should be high on every founder’s to-do list. However, it’s easy to get caught up in sophisticated marketing tools, chasing capital, or reworking product features— tactics that can stall or impede customer acquisition.
Today, Cookin boasts more than 20,000 users in Toronto, but their first 1000 customers were friends and family. “How did we get them?” Morley asks. “Our wedding lists!”
“Find your hack. The most important thing is, can you acquire people? And, do they actually care?”
Ben advises founders to get those first 100 customers by whatever means. “Don’t get too sophisticated,” he says. “Find your hack. The most important thing is, can you acquire people? And, do they actually care? If they don’t come back again, it doesn’t matter if you’re great at acquiring because the customers will disappear anyways.”
Shari encourages startup founders to calculate how many customers it takes to get cash positive. When advising businesses, she wants them to know their numbers inside and out. “What does it take to get cash positive? Where can you find enough customers to get to that? It’s all a money game.”
One of the biggest mistakes startups make when acquiring customers is with their pricing strategy. “Most startups undervalue and underprice themselves,” says Shari. Place a value on your product and offer a discount to get early adopters to buy in—but always charge everyone.
For B2B sales that require a pilot program, she advises placing a value on it, then drawing up an agreement that explains your discount, why it’s offered, and what the customer will provide in return for it (such as feedback or referrals). The ultimate goal is to convert that B2B to something else.
A second major mistake many startups make is in their sales methods. “Sales is all a startup should be focused on. Every feature you’re building, just stop. Go and get sales,” says Shari. When on a sales call, stay hyper-focused on what you’re selling and really care about the customer’s story. Don’t get bogged down on product features.
Old school customer acquisition tactics are timeless
Shari also encourages founders to consider going “old school.” Find ways to talk to people in person.
Cookin utilizes a few channels for growth, including affiliate programs, advertising, and in-house branding and marketing. Its advertising strategy is based on a scientific approach that understands what a customer is worth and how much the company is willing to spend to acquire a customer. The startup places tremendous value on word-of-mouth referrals, and that hinges on its commitment to deliver an “11 out of 10” Cookin experience for every customer. Soliciting and responding to feedback, therefore, is crucial.
“It doesn’t matter how much venture capital we’ve raised, we can’t afford to ignore that kind of feedback.”
“The least expensive way to acquire a customer is that they have a magical experience and tell a friend or neighbour about it. That costs us nothing,” says Morley. “But if that customer had a terrible experience and we don’t listen and course correct to turn it into something special, we’ve lost them and probably six other people they’re going to tell.” This is why listening and acting on customer feedback is ingrained in the company’s ethos.
“It doesn’t matter how much venture capital we’ve raised, we can’t afford to ignore that kind of feedback.”
Gain more valuable insights from RBCx
We want to thank our incredible panelists for sharing their valuable insights, as well as our engaged attendees who helped spark lively discussion with their questions. RBCx is looking forward to hosting another event in the coming months to help new founders succeed in their startup journey. With 150+ years of institutional knowledge, we are dedicated to sharing our deep expertise to help our clients succeed at every step of their entrepreneurial journey.
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