Let your customers fund your product and sell for you
Let your customers fund your product and sell for you
Chandra , Founder of eGrabber did his Bachelors and Masters in the US. He worked in various positions at IBM , Racal Vadic and Digital Communications Associates for almost 12 years. Chandra talks about the days when he decided to start his venture. He was one of the youngest directors in DCA (A publicly traded company) in USA. He was in charge of their west coast R&D when he was in his early 30’s. They wanted him to relocate to the East Coast which he did not want to. He thought he had the capability to build a product on his own and he had made enough money to keep him afloat for many months. CypherTech (precursor to eGrabber) was born. He decided to consult for 20 hours a week to keep his head above water and spent the other half in understanding the market needs. He found that lots of people store 1000s of visiting cards of their contacts in physical folders but find it very difficult to trace those cards when they need to call them. He found this to be a resonating need and hence began building a business card reader .
This , Chandra says, is how he got into lead generation. In a couple of years, the hardware competition from Taiwan and china had caught up and he thought he was getting into a crowded space. He then figured out the products in the online space were a little less. He sold CypherTech (a hardware based company) and started looking for new software company ideas.
He found a company (Seiko) that shipped around 20,000 one at a time label printing machines a month. Seiko operated on the razor blade model, where money was made selling sticky paper labels than on the printer. Seiko made a huge margin, $0.10 for every label that was printed!. Chandra found a daily opportunity for user to print more labels daily. He found when user wrote a letter to clients, they hand wrote the mailing address on the envelope instead of printing a label. That’s because the label printer and the word processor and CRM were different applications it was hassle to cut-n-paste line addresses from the CRM or the letter into the label printer. Chandra came up with an idea to intelligent extract the mailing address from word processors and CRMs and feed it into the Label printers. So the labels were printed on the label printer with a single click. This made sending several mail pieces daily 10x faster than hand writing mailing addresses. This also eliminated mailing address errors and made the envelopes and company look more professional. When he proposed the product to Seiko, they loved it. They could see how they could see an additional 200,000+ labels being printed every month. They were ready to license the product from Chandra.
Chandra had a problem. He was a hardware engineer and did not know how to write software. He wanted the Seiko to fund the project so he could hire a software team. So, he gave a discount on a product that never existed. He spoke and convinced them that they can make more than $30K a month which he took as advance. This was such a compelling model that the customers could not refuse. The prospect funded the project and Chandra built the team. He figured out that he can build a model where he can go to a company, identify a pain point and build an add-on on top of that to give them a benefit and that would be his entry with his client and he began scaling it with other prospects also. The key points in each deal were; 1 – the idea was his; 2-customer got a great deal in return for advancing funds to developing the product; 3 – He retained the IP to sell to others – this was an extremely important aspect,
The idea for the next product came from business lobbies. He found that the organizers take time to print the guest’s name and give them a print out for them to hang on their shirt for identification purposes. He also noticed that this was a dull looking badge. He wrote an application and made them print a label on top of the photographs that the organizers’ take. He again sold only the product and not the license as he wanted the IP. He says that even though he lost out a bit of money in the beginning, the application which was built to extract the information to print labels eventually turned out to be an email address grabber to input into a contact manager. He sold several hundred thousand units of AddressGrabber licenses to other companies. Once the company became cash flow positive, the deal structures changed and margins increased on similar custom made project. eGrabber now had IP that they were bringing to the table, and the customers funded improvements to the IP
Chandra talks about a few statistics of his Corporate Buyer/Investor persona. They would have a product that was curently shipping high volumes per month. He would have an idea for an add-on to the product that gets easy significant revenue to that company. This company would be so big that developing a similar product would take them 3x more time to develop and cost 10x more than he could develop.
These companies would happily buy licenses of his product that can make them $1M+ USD, rather than going through the time and hassle of developing it. He found the science in striking an OEM deal with a manufacturer helps him to reach out to their large customer base. He learned that R&D cost for big companies is at best 15% to 20% of the sales. He found that companies will give at least 5% of the total cost upfront if we can do it for them and help them cut down the R&D costs. Making a few million dollars when there are no costs is a huge value proposition for them, as there is not much downside. The advantage for Chandra was that these types of customers ship a few thousands of his new products every month. They provide instant feedback from their customers which is a massive validation for his product, and would have taken years for him to get. The end result is, his OEMs are shipping a new product in record time, and Chandra’s company gets to launch the same product under their brand knowing there is market validation for it.
Chandra says “Don’t crib that your First Few Customers make 80% and you make only 20% – Because all you are selling are the eggs, you are retaining the IP which is the chicken that is going to continue to hatch eggs forever into the future. You make money from rest of the world. “
He says that his first customer for all his products came in because his clients found a place where he could make them win. His first customer took care of his costs (Direct + Indirect) but he did not make much of profit. He got the profits always from his subsequent customers
He talks about how his product began shaping up due to on-going bleeding edge customer requirements. Initially he solved the problems of printing labels, then he solved the problems of capturing address and input into CRM – AddressGrabber. His customers came back and asked if he can write a software that can extract customer web-form responses that came in email. Once a few customers asked him, he figured out that there is a market. There came the eMail-Response-Grabber. Then his customers came back and asked if information from resumes can be grabbed which led to a ResumeGrabber application. The next set of his customers asked if he could grab name-company-phone-address from directories and listings on websites. that led to a ListGrabber application. The people were saying we have name & company, can you find contact information – that resulted in Lead Researcher. Then people came and said we have a list of companies, can you get us decision makers in these companies – that lead Decision-Maker-Finder. eGrabber kept going stronger, and continues to evolve with many other ideas currently in development,
Speaking of lessons learned at a high level, Chandra said his first level of products saved time of a data-entry clerk, and people purchased them to cut costs. The second level of products he introduced was designed to accelerate revenues and save time of expensive researchers. As a result his new product cost 10x to 100x more than his first wave of products. People buy them, because they get ROI within the first month.
Customer Acquisition Model
He decided that every CRM was no use without customer data. The sooner the customer entered lots of customer records into CRM, the more they would use the CRM and the more licenses they would buy. AddressGrabber & ListGrabber were the perfect tool to enter hundreds and thousands of contacts from documents into CRM. He sold this concept to all the major CRM companies. He stuck a deal with the top five CRM companies (ACT, Goldmine to name a few) and gave them the product almost free of cost as an OEM deal. In return, he stuck a deal with them that they had to demonstrate his product in trade shows. He was able to penetrate into the CRM company’s customers because those customers were not able to auto extract the data from the internet. While this feature was used as a differentiator for the CRMs and helped the CRMs to up-sell to their customers also. His MRP of USD 49 per license got him only USD 1 through this deal but Chandra says that the CRM companies sold almost 1 Mn licenses and made him USD 1 Mn.
Talking about a growth hack , Chandra says that the CRM companies were marketing to 500,00+ customers and postal mailing hundreds of thousands flyers a month. These companies were spending Millions of dollars in mail advertising. In return for bundling eGrabber for a throwaway price, he got them to agree to include eGrabber product information on the hundreds of thousands of flyers they sent by mail. This got him $1M+ publicity completely free. He leveraged their marketing machine. He trained all their 200+ support people to handle queries on his AddressGrabber CRM Add-on. This also resulted in their 800 + CRM resellers signing up to eGrabber reseller program too. This effort ,Chandra says got him about USD 2Mn within no time. He gave each of the CRMs one area of exclusivity and went to the other competitors and sold very easily. He raised his rates to USD 29 after 100,000 licenses and the CRM companies were happy to compensate him. He also got thousands of the customers of these CRM companies directly because those customers did not want to upgrade the CRM but wanted eGrabber.
Things he could have done better
Chandra says that he used to say no to deals in the beginning days of startup (20+ years ago) because he wanted to keep all margins for himself. He behaved like a technologist and did not want to part with his money. After sometime, he figured out that he has to give money to make money and started swinging deals to get the market penetration higher to begin with. He says that he could have become much bigger if he had not said no to them. to the deals that came across earlier.
He said that the next thing he could have bettered (during those early days) was not to wait for the perfect product before he attempted selling. He figured out that many of these features were not something anyone cared about. They just wanted the one feature that was already built, but he kept dealing the product to have several other features not many people eventually wanted. He said he would have made more money if he had released an acceptable product as soon as it was available – and added incremental features along the way.
Being an over enthusiastic founder in 1993, he said even after the person said yes, he continued to demo more features his tech team worked on. He did not realize that he was losing deals because of this. However, with his win/loss analysis , he found that some prospects said that they did not buy because they got confused when he presented so many options even after they were about to buy. With the help of a mentor he learned to shut-up after the prospect said yes, and to begin the paper work. That is an important learning he applies even now and imparts to other founders he mentors.
Chandra’s Advice to entrepreneurs
These are a few pieces of advices that Chandra wants to give to entrepreneurs.
- It is best to do start-up in an area where you will enjoy the journey and adventure through uncertainty.
- When making deals, see if the deal vector is in the direction you want to go and get on to it regardless of any minor inconveniences. It is like getting on the train going in the direction you want to go, even though there is no seat. A better seat will automatically appear in the next few stations if you use your charm, have luck and other relevant talent. This is better than being stranded on the platform for a train with a good seat, there is no guarantees there will even standing room in the next train.
- Identify a gap and try plugging it and move in the direction. The easiest products might be just integration of features of 2 products that currently sold independently. Doesn’t have to be anything fancy. You can all add new features later. All small ideas will grow huge, as long as you are persistent and watch to see more gaps to fill.
- VCs typically don’t invest in ideas as much as people who can demonstrate a record of smarts, passion, persistence stamina, ethics etc.. The best VCs pick people who demonstrate they have the raw talent, and are lending themselves to be easily molded.
Turning your first few customers to investing in your product and make them sell for you… Unbelievable, isnt it?? Chandra is happy to share his experiences and secrets in detail with interested entrepreneurs. He can be reached at firstname.lastname@example.org
eGrabber (www.egrabber.com), has 100 employees, 150,000 direct customers, happily bootstrapped as management team can decide what to do and no external influence.
The new eGrabber product line helps b2b sales teams and staffing companies reach prospects before their competitors do. The new tools enable b2b start-ups & small teams build targeted b2b lists no-one-else has, by leveraging the Live-Social-Web and LinkedIn. It enables building lists from LinkedIn, Job-boards, Google and any online portal. It also provides context to engage prospects.
eGrabber current shipping tools include LeadGrabber, LeadResearcher, ProfileViewer, Prospect-List-Doubler, Customer-List-Updater, C-Level-Finder, Hiring-Manager-Finder, eMail-Prospector, ListGrabber, AddressGrabber.
If you are interested in knowing what eGrabber is … Here is a 2 minute video to the fastest way to build prospect lists from Live-Social-Web and LinkedIn.