Add one unique feature in a commodity product to differentiate
Add one unique feature in a commodity product to differentiate
About Ajeet Khurana
Ajeet Khurana wears many hats: author, angel investor, mentor, TEDx speaker, steering committee of the NASSCOM Start-Up Warehouse, Director of Founder Institute Mumbai, ex-advisor to Kalaari Capital, and former CEO of IIT Bombay’s business incubator, among others.
Before all this, he was entrepreneurial twice in the field of education and web publishing. As a lecturer at the University of Texas at Austin, he taught e-commerce back in 1993, when the term “e-commerce” had not yet been coined. An undergrad in computer engineering from the University of Mumbai, and an MBA from the University of Texas at Austin, Ajeet is presently a leading name in the startup ecosystem.
From starting two ventures as a solopreneur, to helping a large number of startups with their go-to-market, he has never shied from getting his hands dirty. At the same time he has helped dozens of startups raise investment. He truly believes that small business owners are driving change in the world, and need to be facilitated as much as possible. Innumerable small businesses have gained from his attitude, vast professional networks, financial acumen and digital mindset.
What is important in a startup?
Every investor talks about scalability, innovation, teams and a host of understandable things for a startup to perform and to scale, Ajeet says that even though many of the aspect of the founders such as age, education and their prior experiences are leading indicators, the actual metric that will tip in favour of a startup is the Founding teams maturity.
The market size and the product is an important aspect though but the maturity of the founding teams will always be able to figure it fast and can pivot or modify any thing that comes in their way to success. Ajeet talks about three companies in his portfolio on how they acquired their First Few Customers. Due to Non Disclosures, he is not naming them.
He excitedly talks about three startups that worked very well for him. He calls them as
Company A – This company was founded by a duo who had 10 years of experience each in the financial domain.
Company B – By a college drop and his colleague out at an age of 20 years.
Company C – This was founded by four people each of who has worked at a startup in the past.
Knowledge of your buyers
Ajeet says that every founder has the confidence and the belief that their product is the best and there will be enough number of people who will buy it but will not find them that fast. The sizing of the market such as 100,000 buyers, 50,000 touch points, 20,000 engagements, 3,000 signups, 200 customers model works for established companies but not necessarily for startups because it has no track record and sometimes no market itself. The most important thing to have before entering a market with a new product is to have what Ajeet calls as “sympathetic buyers.” Ajeet goes on to elaborate the term by saying that these are people with very good position, pre-existing chemistry with the founders, people known to them so that the founding team can leverage their relationships and get a few buyers under the belt in the shortest possible time.
Many Founders do not understand that and stay rooted in their own position and do not land customers for a long time and then get desperate by giving the products at an extreme discount or will give it free. There is an initial euphoria of getting a customer base when they get into a cost cutting range, but little they realise that these customers will come back again to them when it is given free as they perceive no value for the product.
Ajeet talks about his specific experiences with the three companies.
The founders, in their early days went all over their market and began physically demonstrating their product in every platform but could not get any customers because there was a lot of resistance from buyers to buy the new product. A chance conversation with one of their friend who gave them a quick connect with a senior buyer he knew gave them a way to figure out a model and they unabashedly began approaching all their known people and began asking help, Sales began happening.
This was a different way of customer acquisition. They used Social Media because this was a digital offering. They, in order to get more signups, began offering their customers a freemium model where they can begin using the product free of cost. This free model had a catch. The customer has to put in certain amount of effort in getting ready to be able to use the platform. After they began using the platform, they also should like, favourite and share the platform in their social media and do some commenting thereby promoting the product within their community. This got the product familiarity to be viral and they got 125,000 signups within a few months and around a 1000 of them have begun paying them.
They identified 2 or 3 characteristics that the buyers look out for which were reliability, price and speed. They are benchmarking against the likes of large players such as Amazon, Google, etc and created benchmarks that were reliable. This was a great validation of their capability in the market from a product perspective. Despite this, it still was difficult for buyers to believe that a pair of kids can take on the global large giants and the resistance was very high to purchase.
Hence they created four levels of products. The fourth level was free and allowed people to try it out as a foot in the door strategy. However, even the free layer mandated the customer to put in efforts to get on to the platform which gave a good buying indicator that the buyer was interested and hence they spend the time — since they put in the efforts, the customers began using the product and began liking it. When the usage got a bit bigger or when the customer grew a bit bigger, they realised that the free layer was no longer useful as they had outgrown the feature. They began upgrading.
They adopted the model of Innovation. This was because they were selling an offering where there was no comparable offering. Since this was a new offering, they did a research of their substitute offerings in the market and started tapping that customer base. They began approaching these people who were buying stuff similar to this product and compared the features of the product they were using with their product and gave a great ROI for some early level features.
They began networking very well and began connecting their 1st level and 2nd level contacts with companies they had mapped. They began requesting these contacts to connect them with buyers. Since it was a new product in the category, they did not approach any buyer without someone either referencing them or sometimes even recommending them. This got them instant meetings where the buyers were open to listening to the founders and they were able to convince the buyers that their product was much better than the ones they were using at an unbelievable price. The first round of success was 12 customers out of the 20-odd people they approached.
Ajeet says that in terms of a Go To Market strategy, Company B & C still continues to follow the same model to acquire customers.
Objections customers had on the startups
Ajeet talks about the standard objections that came in the way of the companies which were
1. You are saying you are cheap, but what is the guarantee that you will not change your price?
2. You are fast because you don’t have load and you are new, but later you will become slow!
3. How do I know that you guys will be around when my existing vendors are a few decades and internationally known?
The way these objections were handled by the founders are as follows: For the first one, the founders convinced the buyers that they can do a long term agreement with a fixed price and can continue to host it and support the customers as long as they are willing to pay.
On the second one, the way the founders countered the objection was that they can try the service for a good amount of time till they get comfortable with the consistency in speed. The customers need to pay with minimum variables and need to pay only when you get comfortable which would have given them enough time to test it out
On the third one, the founders countered it by this method. They began talking about their big competitors being global and large at scale. However, at the end of the day, what they are purchasing is only a commodity and a buyer can expect comparable levels of service from them. However, what differentiated their product is the insertion of a new IO (Management) layer that the existing large vendors did not offer. This intrigued the buyers which gave the customers a good grip on the underlying technology advantage.
Ajeet’s advice to entrepreneurs
When you think of becoming an entrepreneur and decide the space, you should know your first few customers. If you say you don’t know them at all (sympathizers), then you are only thinking from a product focus and not a market focus.
Ajeet says that he always asks people who approaches him for the funding for who these first few customers are, why will they buy it for, what features will they buy and what price will they pay. Ajeet however cautions, that this is just to get started. The earliest adopters need not necessarily be representative of the eventual customers. This is because some people are just waiting to buy the exact offerings of your startup product, and they will buy when one of you will find the other. When the product matures after the early adopters usage of the product and the founding team moves into a discerning market, the feedback is different.
Ajeet also says that discounts, freebies and equivalents will get you a few early sales but they are meaningless in terms of track record or indicators of how the future will be. This is because the discounts will only create an artificial market and the same people may not buy continuously from you if they find something similar at a better deal elsewhere and hence value selling is extremely important.
The three companies as of today
Ajeet says that all the three companies have become funded companies.
Company A has raised 3 rounds of funding and is in fourth round, Their current monthly run rate is greater than their annual run rate 15 months ago.
Company B has raised the first round, When they added the IO (management) layer, they acquired 125K customers compared to a lot of struggle in getting even a few customers.
Company C began with their first round of funding.