Dafna Bareket & Inna Yuchvits
One of the leading reasons a startup fails is a lack of market need. No matter how visionary the founders are or how well-resourced the startup is, if there is no demand for the company’s products or services, it is doomed from the start.
A strong early-stage customer acquisition strategy not only helps companies attract the right audiences but also provides key insights on how to refine a product or brand. Particularly for B2B startups – in which the customers are other businesses – acquiring your first customers during the first year is essential to placing a company on the right growth trajectory.
During our first few months of acquiring new customers at Melio, we did not even know what our final product would look like. However, one fact was clear: small business owners face immense challenges keeping track of their finances, and there had to be a better way to quickly and seamlessly transfer and receive payments. We were shocked to learn that paper checks account for 50 percent of the $25 trillion B2B payment volume in the U.S.
Expect to Learn:
- Step 1: The pre-product phase
- Step 2: Finding your target audience
- Step 3: Post-product customer acquisition phases
- When to optimize
- How a strong customer acquisition strategy can create a better product and brand
Step 1: The pre-product phase
Dafna Bareket: Fresh out of graduate school, I found myself working for Melio, then an unknown payments startup with only a few employees. My marching orders were to find Melio’s first customers – small businesses that were willing to share their invoices and allow us to make payments for them.
Finding Melio’s first 10 customers was a tall order. We had no product, no brand, and no big incentive to offer. What’s more, we were asking small businesses to trust us to keep track of their vendor payments and access their funds to make the payments – a hard sell given that one late payment could jeopardize a small business’s relationship with their vendor.
When searching for Melio’s first customers, I mostly leaned on my personal network. I asked friends and family if they knew a small business owner that would be interested in free bookkeeping services, advertised our services on Facebook groups, and even spent a few days knocking on doors in the streets of New York.
Luckily, we found a few small businesses willing to place their trust in an unknown startup. These businesses began sending me their invoices on WhatsApp and I would write checks to their vendors on their behalf. I would then feed these invoices to our designer and two engineers, who studied the invoices and began developing Melio’s accounts payable solution.
These early customers gave us a behind-the-scenes look into how small businesses traditionally make payments – and their top pain points. We learned that small business payments are very decentralized – every business has its own system for keeping track of payments and businesses often pay each vendor in a different way. Most importantly, we quickly understood that there was a demand for an accounts payable and receivable tool to help small business owners spend less time in the back office and more time growing their business.
A startup’s first set of customers can provide valuable insights into the direction of your product. During the pre-product phase, listening to your customers and learning how you can help them is much more valuable than focusing on your next 100 or 1,000 customers.
Today, I am still grateful for the experience of recruiting Melio’s first customers. Now, as I lead Melio’s customer services and manage the New York site, I know I am much better equipped to provide Melio’s customers with the best support possible.
Step 2: Finding your target audience
Inna Yuchvits: Once you have a better sense of what your product will be and what is the market demand, it is time to determine your target audience.
Startups often make the mistake of modeling their target audience based on prototypes and biases. And for a company like Melio that uniquely targets America’s 32 million small businesses, these biases can be even harder to ignore.
In the United States, 99.9% of all businesses are classified as small businesses, and these businesses employ nearly half of the U.S. workforce. In fact, it is hard to find someone that does not have a friend or family member who either works for or owns a small business.
During our early stages, we had to fight the urge to target what we know. For example, if I had a family member who worked at a restaurant, I might have strong opinions about whether restaurant owners should be one of our target audiences.
As a general best practice, however, startups should try to ignore these biases when determining their target audiences for customer acquisition. Instead, they should model their audience based on behavior, not prototypes and clichés.
Rather than only targeting small business owners in certain verticals that pay a certain number of bills each month, we started modeling our target audience based on behavior. We knew that our products would be most helpful for customers that needed help managing their cash flow and wanted to spend less time in the back office.
By modeling our ideal customer’s behavior rather than prototypes, we were able to shake off our preconceived ideas of what the ideal Melio customer looked like and could better determine how we should spend our marketing resources.
Step 3: Post-product customer acquisition phases – building your brand and growing your customer base
Inna Yuchvits: Once you have modeled your target audience, it is time to build your brand, create marketing campaigns, and invest more resources into acquiring customers.
At Melio, we first started by leveraging the existing demand. We used free methods, such as creating SEO-friendly website content, and paid methods, such as search engine advertisements, to attract small businesses searching for online payment tools.
However, existing demand will run dry eventually. When that happens, it is time to pivot to reach customers that could benefit from your products – but they just don`t know it yet. This phase relies heavily on paid advertising to target customers that are not actively searching for your products.
During this phase, it is critical to experiment with your messaging to determine what tactics are most effective. In stark contrast to other phases, your tactics can now be guided by quantitative rather than qualitative data.
An acronym we often repeat at Melio is ABT: Always Be Testing. Even today, while we continue to double down on effective messaging, we are also deploying new messaging to see if different framing and data points are resonating with small business owners.
When to optimize
Many startups invest in the top of the marketing funnel – education and awareness – too early or too late. Either a competitor beats them to it, or they start trying to attract customers before they know who they are.
My advice to other startups is simple: never optimize the top of the funnel. The cheapest leads or first-month users are not going to necessarily turn into the longest-running and highest-paying users. Rather, when it comes to optimizing your customer acquisition tactics, look to the bottom of the funnel. What is ultimately converting customers?
The most expensive tactics to get potential customers to visit the sign-up page might also be the most effective. While cheaper customer acquisition tactics might look appealing, they may not deliver the results you were hoping for.
How a strong customer acquisition strategy can create a better product and brand
Melio would not be the company it is today without our first customers who helped us build a better product for the tens of thousands of customers that now use our platform. By developing strong professional relationships with these customers, we were able to receive the feedback we needed to develop a strong product.
Then, through trial and error, we built our brand. We found our niche in the B2B payments ecosystem and learned how to differentiate ourselves from competitors. Today, Melio is growing faster than ever, processing over $2 billion in payments monthly and helping our users cut in half the amount of time they spend on accounts payable while also better managing their cash flow.
Our customer acquisition strategy essentially took the approach of trial and error, but we have no regrets about the decisions made during Melio’s first year. Although some tactics were not as effective as others, we would not have found the best tactics without trying the worst tactics.
There is no one-size-fits-all approach to customer acquisition. Startups like ours have and will make mistakes – some more costly than others – but our willingness to adapt has been the key to our success.
During the first year, customer acquisition is not just about acquiring the most number of customers that you can – it is about learning who your target audience is, their needs, and how your company fits into the bigger picture. If you can glean those insights during the first year, you won’t just be able to acquire more customers, but you’ll also be able to retain them for years to come.