How to Get Your First Customers | Startup School

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School. My name is Gustav, and I'm a group partner here at Y Combinator. Today, I'm going to talk about how to go from talking to users to getting your first customers. Here's what I plan to cover today:

1. What does it mean to do things that don't scale, and why is this mindset so, so important at this stage of your company?
2. How to do sales. I'll make the argument that founders should be the ones doing sales in the beginning.
3. Then we'll cover some sales funnel information and then why it is so important to charge for your product.
4. Finally, we'll learn how you work your way backwards from your goals and why that's important.

I hope you've read this article or this essay. The most important essay ever written about the very early stage of startups is "Do Things That Don't Scale" by Paul Graham. Paul is the co-founder of Y Combinator. He published this essay about the early days of Airbnb. Airbnb is perhaps the best example of a successful YC company that got their feet off the ground this way.

Many founders who never worked for a startup or an early-stage company incorrectly believe that all you need to succeed is a good product and growth will take care of itself. This is not the case. The truth is that a good product is very rarely built in isolation but together with your customers, and as a result, it's not actually that good when you show it to your first customers.

Set this another way: Startups don't take off by themselves. Startups take off because founders make them take off, and you have to manually recruit your customers. It's not enough to push a button on an advertising network. This is uncomfortable, and founders continuously find many ways to avoid doing this. The most common way is believing that you can recruit people by just writing more code or doing more work on your machine, your robot, or whatever you're building. I know this from my experience at YC that this actually doesn't work.

So why am I talking about this right now? Learning the tactics of sales is just one side of this learning. The most important side is really realizing that it comes down to you. It's not just knowing exactly how to do sales in theory but actually doing it and actually wanting to succeed.

Another great visualization is what's called a startup curve. This was initially drawn by YC found program and then labeled by Trevor Blackwell, and you've probably seen this curve before. Most companies go through something like this; it's kind of like a timeline for startups.

Here's how it goes: First, you launch. These days, most companies don't launch on TechCrunch but probably on Product Hunt or Hacker News or some other internet board. The launch energy that you get from this launch eventually starts wearing off as early adopters are looking out for something new. If you don't have instant high retention, nobody does for what you are building, then you'll enter the trough of sorrow. This can take a long time, and many companies die during this stage. They just give up and don't move fast enough with testing new things.

Some startups do move fast enough and release new improvements to their product. They'll listen to users and improve. Many still don't get anywhere further and become victims of the crash of ineptitude. It's the founders who stay the course and don't give up that reach the wiggles of false hope and eventually the promised land of product-market fit.

The learnings we draw from the startup curve is that every moment in the early days of startups, the founders are the ones that make the difference between success and failure. If you are in the wrong market, it's the founders that switch to a new one, and if you don't know how to do sales, it's the founders who learn. So you have to really want it; otherwise, this won't work.

All right, let's talk about sales and how to do sales. First, founders should learn how to do sales. You should learn how to do sales because you'll need to learn to know your customer. Talking to customers and sales are effectively different sides of the same coin.

The same reasons founders can't understand what to build is that they don't understand what the problem is. You don't know how to sell unless you know your customers. Two, learning how to do sales actually gives you full control of your destiny as a startup. Just like you can't outsource engineering, sales has to be part of the DNA of the founders. Sometimes, you just have to learn it. As a result, you should not hire a sales team until you know how to do sales yourself. Only then will you know what good looks like.

You also can't do sales if you practice badly, and you won't know if the product is bad unless you've had some effort in trying to sell it first. If you don't know how to sell, don't worry; you can learn. It's probably the easiest job to learn in a startup if you know the problem you're solving. If you know your product intimately, if you know the market, you are an expert in the eyes of the customer. They will want to hear what you have to say.

Finally, a love for solving customer problems is really infectious. If you're really passionate about solving this problem, they will be able to tell. If you don't believe me, here are some examples of founders who took on the sales job and learned to get really good at it: Tony from DoorDash, Matild from Front, Tracy from PlanGrid, and Steve Jobs.

Let's get straight into an example. These are the Brex founders, Pedro and Henrique. When Brex was in Y Combinator in the winter of 2017, they recruited the first 10 customers directly from the YC batch. June YC, you have the benefit of being around other startups, i.e., potential customers.

The Brex founders asked themselves, "What would the minimum product look like that they can build to be useful to other startups?" And then they went straight into signing up those customers. The first version was very, very simple. Customers just had a virtual credit card, and Enrique from Brex actively onboarded every one of the customers himself.

Of course, they could have waited until they had a full-blown product, a website, a mobile app, all of those things, but they decided to get going when they had something that was really useful. This is how their first physical card looked like. Before they had this card, they just had a virtual card. Brex reached out to their YC batch and otherwise the companies, and this is the email that they sent.

I'm just going to read a brief portion of it: "Hey guys, we're opening up our beta for winter '17 batch friends with the 10 spots for beta users. 10 spots, this sounds like there's a limited spot, so I should take action. Brex is a corporate credit card focused on technology companies. That's me, perfect. You're actually writing the email directly toward your customers. We don't require a personal guarantee; we can underwrite startups who just got started."

This was the value prop. Most other alternatives to Brex did not have something like this. So how much does it cost? It's free; the merchants are paying us, so there's zero annual fees. This seems like a no-brainer. I would argue that this email is probably a little bit too long, but it did work.

So let's talk about how to write a great sales email. First, it should be short, max 6 to 8 sentences. The Brex sample on the previous slide is probably too long. It still worked, but probably too long; people don't have time to read long emails. If you're coming out of academia, your culture is going to be very different. You write very long emails, but in the world of sales, you want to get to the point and be brief as much as you can.

Two, you want to make sure you have clear language; no jargon, no buzzwords. Just say exactly what you do and how it works. And then three, address the problem that the potential customer is having.

Four, do not use any HTML formatting. Write your email in plain text only, like you would write it to a friend. Say you are the founder of the company who makes this product. Many people forget to do this. Describe why you and your team are impressive. Include social proof and remember to show, not tell. Don't say you're an expert. Don't say how many years that you have been an expert. If you're in the YC batch, if you worked at impressive companies in the past, those are other pieces of social proof that you can include.

You won't include a couple of these ones so that the reader knows the source, and even if they don't know you, it gives you some authority. Six, you want to include a link to your website. The website needs to be simple. You have to have information about the product. The website should not have a lot of drawings or sort of like paid-for graphics. You should just have screenshots from your product and bullets about what your product does.

Sometimes it works to send a short video, a YouTube video that you can embed in the email; that's very easy for the receiver to click on and view. And I've even seen people using GIFs. Now those videos and those GIFs need to get to the point right away because the receiver is kind of intimately familiar with the problem but does not really have time to watch two or three or four minutes of a potential solution.

Finally, you want to include an ask for a call or a meeting or a self-serve, whatever is appropriate for your company, but there needs to be a call to action in the email that you're sending.

All right, let's talk about the sales funnel. The concept of sales funnels is really quite easy. I think people get confused by the language salespeople are using, so I try to simplify it here. On the left-hand side, I call it the founder speak; on the right-hand side, I call it the sales speak. These are not going to be perfectly mapping, but you get the idea.

So first, you want to make a list of customers you plan to reach out to. In sales, it's called prospecting or lead generation. We'll just call it making the list, and you can use Google spreadsheets or something like that to make this list.

Then we want to send them an email or a LinkedIn message or add them on LinkedIn, or whatever is the appropriate way to contact these people. After that, you want to schedule and run a demo or a meeting from that response to the email, and then you want to talk pricing and then finally close them as a customer.

The last thing, which you should not forget, is after you've closed them, you still need to onboard them to make sure that they start using your product. If this is successful and you have good retention, that could lead to long-term revenue. If you forget the last step, then you will have lots of churn because people don't actually know how to use your product, and this is common with early products because they are not easy to onboard in the beginning.

This is not something you spend a lot of time optimizing, so make sure that you do the onboarding as part of this process. If you go back to the Google spreadsheets that I'm making, that I'm putting in all the information, you should start simple, but you should have some columns of things that you're tracking, such as industry, the company, the title, the name, the email, maybe the LinkedIn. This could be enough to start with.

A lot of CRM software comes with these categories, so these columns; it's a pretty good idea to kind of use a simple CRM software to accomplish the same goal, but the key thing here is doing this work upfront. I've seen a lot of YC founders that when they are getting to a thousand of these, they're like, "oh, this is a very simple task; I can actually outsource this," and I think that can work if you know exactly what it is you're outsourcing.

Storing all this information is going to be helpful for you in the future. Now I've made my list; I understand this. The sales funnel, so who should I be going after and how should I be prioritizing as I'm doing the outreach?

Here's my most important advice when it comes to sales: Your first customers should be your easiest. This is not the time to bite off the hardest one. Focus on the easiest ones. What I mean by that is you should try to do sales and make the sales processes easy for you as you possibly can.

Startups don't really have time to chase every lead. There's a lot of leads out there. You don't have to pick all of them; you really don't. You're so early you can pick only the ones that are the most likely to close. The best way to do this is to have a big pipeline, where that means a lot of people that you're emailing are potential customers, and then as you're getting responses and you're getting to meetings, start prioritizing those who are the most likely to close.

You can probably tell from their answers to your qualifying questions during the sales call. Avoid those who are moving slow, and don't be afraid of letting customers go. Don't be afraid of letting customers go. What I mean by that is that if someone is dragging you along after two or three calls, you can always be like, "It's been great getting to know you, and I've learned a lot, but we should talk again in six months." That's totally fine to say.

Selling to people you know is going to be easier than selling to strangers, so you should take advantage of your network. Three, selling to startups is the easiest category. I've learned this over and over again with YC companies, specifically the ones that sell software. It just turns out that bigger companies have more bureaucracy, more processes. They even have a specific department that is in charge of negotiating with you, and that takes a long time.

Startups don't have any of these things because they don't have time to create these things, but it's not a priority for them. So startups have short decision-making lines. You can often find the decision-maker right away as you do in the outreach, and you don't have to go through a difficult process. That's why startups are easier, and that's why we recommend most companies to sell to startups.

At least leads me to the fourth point: Most people are not early adopters, and I keep saying this to the YC companies I work with all the time. The reason you have to send hundreds of emails is not that most of those people get really upset and be like, "I can't believe you emailed me! I really love this alternative product, but I hate your product." That's not what's going on. Most people you email are just like "archive." They just don't care; they're not going to try a new product that comes in through your LinkedIn or your email, and they might not be the people that try a new product at all in their career.

That's most people. Some other people, I remember being one of those people when I worked at Airbnb. I would love when founders emailed me with new products, and I would be the one signing up for them. So when I worked at Airbnb, and you were a startup that emailed me, it was great! I am an early adopter; I love trying new things; I don't mind the risk of trying new things.

So for every outbound email to an average company that you send, you will most likely, on average, reach someone who is not an early adopter. To reach early adopters, you just have to send more outbound messages because then you don't have time to convince anybody to become an early adopter. You have to find early adopters and just go for them early on. Don't worry about everybody else; you just don't have time to convince them.

Let's talk about charging. It's attractive for you as a founder and for your company to offer your product for free, offer free trials, or unpaid pilots, and these things come in many shapes and forms. However, if you don't charge your customers, they are not a customer, and you don't have a company. Customers paying you money is a great sign that you're providing them real value. So you should resist the fear of getting a no because of price instead of figuring out what the price should be.

If they don't want to pay, you learn this during the qualification process in the first call or the first meeting. If they don't want to pay, that's a great sign that you should move on to the next customer. Again, fire the ones who seem like they're not a good fit; move on to the next customers. Free trials are common for consumers, but if you think about it, most consumer free trials ask for the credit card upfront, and then we forget, and then we pay anyway. That's because that actually works best.

The B2B version of this is better than a free trial. A money-back guarantee works; we charge you, and if you're not happy, you can get the money back in 30 days, 60 days, or even better, you have the ability to opt out from the annual contract. You just pay for one month instead of the annual fee, but you should not offer free trials in B2B sales. Go for a money-back guarantee and go for the ability to opt out instead of increasing your price until your customers are complaining but still paying.

All right, let's talk about the thing that most founders get wrong. I've seen this many times, but there are a few things that most wanted to get wrong, and this is one of them: working backwards from your goal with your sales funnel. In order to work your way backwards from a goal of, say, two signed customers, you have to understand that each step in the sales funnel is going to have a drop-off.

When you haven't started sales yet, you don't know what these drop-off percentages are. Maybe you haven't done a lot of sales before. You don't know what you're not good at. Maybe you're really good at sending emails but really bad at closing, or vice versa. You don't know that, so as you're sending these outbound emails, you need to take notes and start tracking all of these conversions.

In this example, I'm sending 500 outreach emails or LinkedIn messages. I have a 50% open rate. That means 250 people will open the email. Five percent will respond. That's about 20 potential customers. Fifty percent of those will convert to demo from the response, which means I'm doing 10 demos. That's pretty good, but I'm not that good at doing demos; only two end up becoming customers from the demos. That's 20%.

I bet you most of you don't even track this data, but you should. If you track this data, you will have some idea of how long it will take to get to 10 paying customers. If you don't track this, it's very hard for someone to give you feedback on what's working and not working right. It's just like when you're launching a new product; you want to have some metrics and some user data to be able to tell if it's working. When you're doing sales, you want to have this data. If you have this data, people will be able to give you feedback on what you're good at and what you need to get better at.

My advice is to use a simple sales CRM software that tracks these conversion rates automatically. Let's look at this second example. This is how it looks for most startups, even the ones that I work with in the batch. In the second example, I'm sending 100 outreach emails. It feels like a lot to me. If I keep the conversion rates constant from the previous example, I actually end up with zero customers.

The conclusion the founders draw after this is that sales is not working for me, and I should just do marketing or SEO, or something else or referrals, or something that sounds attractive. This is simply wrong. You don't have the data to make that call. You did not do enough outreach to actually get correct conversion rate percentages in your sales funnel.

So the answer here is you sent a few too few emails. You don't have the data; you can't draw the conclusion that sales is not working, even though you have zero customers. This is the mistake that founders do on and on and on again.

To summarize what I just went through here: You don't know your sales conversion rate. That's why you need a CRM to keep track of it. Two, because you don't know who is an early adopter, you have a lot of drop-off in the outbound sales. That makes sales ultimately a numbers game, and successful startups we like this and internalize this.

Three, you cannot close five customers from 10 leads. It's not possible; you need a lot more outreach than that. Unfortunately, most founders don't work their way backwards from this sales funnel, and they don't do this exercise, and the result is they don't succeed in sales, and they don't really know why.

A friend of mine from Airbnb, Atlanta Rashitzki, writes an excellent blog, and he wrote a great blog post about how YC and a bunch of non-YC B2B startups got their sales go-to-market strategy going. I recommend reading this and other posts of his newsletter. It's one of the best ones I've come across. It has a lot of real data that he collected from real companies, many of them being YC companies.

In this example here, in the second column, Lenny is describing the initial sales motion of some of these companies. As you can see, some of the early ones, like Amplitude, Stripe, and Front, were doing outbound sales emails just like the one we described to get started. Those founders were doing those sales emails as they got started.

Some of the other ones were called product-led; product-led could mean something else than just doing outbound sales, but it doesn't mean having a big sales team, and it usually does not mean doing marketing or SEO or something else. Practically, it means something that the product itself is sort of like driving the growth.

As you're running the demo, your goal is to close your first customers. You want to ask a lot of questions upfront in the demos, and it's the founders who should do the demos because you are the one knowing the product and you know the customer pain points.

Here are three examples of YC emails that led to customers. So I'll let you guys look at the details of these afterward, but this is an outbound email that led to a $72,000-a-year contract. This one led to a very specific email that landed a goalie as a customer, and this third example here is the same email that got them 22 different customers.

All right, I'm going to summarize this again. The biggest mistakes that most founders do is they don't do enough outreach because they don't work package from the goal, believing that something else than sales is going to solve your sales problem. Outsourcing sales is wrong; you should do it yourself, and you need to qualify your customers during your first call.

Here are some of the tools I recommend. There are many, many, many tools. This is perhaps one of the biggest categories of potential things you could use as you're doing sales, but I recommend Apollo.io, Close.com (formerly called Closed.io), Pipedrive, or Hunter.io. These are great tools that you can use either as a simple sales CRM, or Hunter you can use to get contacts or potential people to email from LinkedIn.

Here are two additional resources: If some people ask me for books, usually there aren't good books, but there is actually one that I came across that I find really good. It's called "Founding Sales," and then I also recommend LennysNewsletter.com.

There are, of course, other ways that you can grow as a startup, but the truth that I've learned is that even if you end up with, say, Airbnb, where the sources of growth are word of mouth, Google search, referrals, Facebook advertising, if those are the kind of end states of your growth strategy, that's not how Airbnb started.

They didn't start by running Google SEM or Google SEO. The referral program did not bring in the first 2,000 customers; they did things that didn't scale, and they looked different than the ones they do at scale.

So a lot of companies are shoring straight into what's called the scalable growth channels—the channels that they've heard work, which is true at scale, but that's not the same thing as when you're getting started.

In this slide, I'm outlining just a rough idea of how even if it turns out Google SEM and Google SEO are what’s going to work at scale, you need to find another place online where these people that you're going to reach through SEM and SEO are identifying themselves online, right? And that might not be the same as Google. If you're trying to go after SEM, which means search engine marketing, it's going to be expensive probably because there's competition. If you're going after SEO, it's going to take a long time.

If your growth is, say, product-led or virality referrals, then personal networks—selling through your personal network to your co-workers—is the way to get started. Of course, if you're doing sales, you should be doing sales. It doesn't change very much. Early-stage sales to large sales basically means all the things that I just described here done by 100 people in a sales team with more automation, more tools, and more metrics, but it's the same thing.

And if you practice set up to do online marketing, it's not usually how most people start. Why? Because you can't really easily talk to people; you can't learn from users if the first thousand or first-hand customers are brought in through Google and Facebook. Those people are not the kind of people that you can easily get on a 30-minute phone call with.

All right, that's all I had today. Thank you, everyone.

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