Founder Fridays

How We Got (or didn’t get) Our First Customers

Defining your customer base is tricky before you have completely defined your product/service. For this reason, it’s important your early conversations are full of questions and observations, rather than pitches for your idea.

There are a few things I think we did wrong in the beginning, so hopefully I can save you the trouble by sharing our learnings.

Definitely startups in Kenya may think about this in other ways than in the US or Europe, but I think most of these insights are fairly universal.

Your time is valuable (even if your product isn’t finished)!

Startups always think the hardest thing about getting their first customer is convincing someone to buy your service or product. But I think the hardest thing for startup founders to make their first sale is actually convincing themselves that their product or service has value.

I remember the early days in Nakuru – we didn’t have a developer team in Kenya, and had a very bare-bones MVP. In order to match clients to job seekers, we would go to our trusty Excel document, and Ctl + F specific skills until we found the right job seekers for the job. To us, it seemed ridiculous to charge for this service – two recent grads in an office, huddled over their computers, manually sorting through CVs and candidate profiles to find a match.

Duma Works - the best online recruiting platform in Kenya. Here I am hard at work in the Nakuru office helping job seeker in Kenya get connected to jobs.

At the time, we didn’t realize that even just using our time to find these job seekers was value – even if we weren’t using the fancy software we pitched clients on. The method was a bit different about how we matched people, but the results were somehow the same.

That is value, and you can’t just give value away for free.

Don’t just pitch – learn about your potential customer

Instead of having a conversation with our potential customers to learn more about their current hiring challenges, we just tried to push our product. We walked around Nakuru, scouting potential customers – from the small hotels on the outskirts of the muddy central market – passing out business cards, and assuming we would eventually get lucky and get clients.

Our pitch was – “You can find people through SMS! You don’t need to just rely on your friends anymore!”

We thought this was great, but is this a service everyone needed? Probably not. The super small shops mostly hire family members, as do companies operating in very informal sectors. Their entire basis of operations is informal, therefore their recruiting is as well.

Had we sat down to have a discussion about what their company looks like, how many staff, how often do they hire, what is typical salary expectation, do they have any challenges with their current way of doing things…we may have learned sooner who would be a good target client and who wouldn’t.

(As a PS – the best sales technique in general is to ask tons of questions and get the prospective client to open up…who knew? :))

This all is not to say that we don’t think a more formalized hiring process is beneficial to these small, informal shops. I believe they would be able to grow more effectively if they were able to hire higher quality people.

However, they are certainly not our earliest adopters, and since they have such a low ability/desire to pay – the sales required to get them on board simply wouldn’t make sense in terms of unit economics.

Duma Works visited the Nakuru Marketplace to explain to companies how to connect with qualfied job seekers more effectively

The Nakuru market – these ladies selling vegetables were certainly not our ideal first customers

Which brings me to my next point – Segmentation.

Segment, then sell

In our minds, all of the small businesses in Nakuru (and Kenya…and the world!!) were our customers. Every storefront in Nakuru, every vegetable stand, every individual person who ever needed a plumber to come fix their pipes at home…

Probably what would have made segmenting easier for us would have also been to understand that our customers would need to pay. Then, in our conversations with potential clients, we could not only ask – “Do you need this service?” But also – “Would you be willing to pay for this service?” Then, we could have assessed how many people were willing to pay, how much, and how much it would cost us to get them as customers and to keep them.

Eg.

(1) Assess who is a great early customer:

Low Willingness to Pay + Slow Adopter = Bad fit
Low Willingness to Pay + Fast Adopter = Good evangelist, bad customer
High Willingness to Pay + Slow Adopter = Bad fit (too high cost of acquisition in time/money)
High Willingness to Pay + Fast Adopter = Great early customer

(2) Gather all the great early customers and compare market opportunity sizes → Focus on the biggest opportunity!

…Easier said than done, and assessing market size for both current and potential is not a straight shot. But it’s a good place to start. If you want to learn more about advanced customer segmenting, check out this awesome post about how to quantify your customer segments.

You learn something new everyday!

Of course, during our slow testing period, we were learning a lot. I don’t regret all the days avoiding the sun, and asking mechanics to sign up via paper forms that Christine and I would later input manually. And it was good that this process helped us understand how culture, and time, and language, and meetings work in Kenya.

Duma Works old paper CVs helped job seekers get connected to job opportunities in Kenya

“Ungependa kufanyiwa CV mzuri free”? …VERY proper Swahili for “Want us to make you a great CV for free?”…Our paper sign up forms from Nakuru that have received many laughs from our current team members

But! Perhaps we could have come to a conclusion about our customer needs + core target market + value proposition a bit faster had we understood this initial sales process (for a pre product-market fit startup idea).

Side-point about defining value as revenue-based or user growth based

Maybe in the US & Europe where markets are flush with capital and there are startups exiting all over the place, there is less value placed on the startup’s ability to actually make money from clients. More value is then placed on the ability to grow and scale the userbase/network virally for revenue streams down the line in advertising or data etc.

Probably until the digital advertising space in Kenya is more mature, the value for Kenyan/African startups will be focused more heavily on revenue stream than userbase.

And! Until the general population embraces their “digital life” more, there isn’t a big enough customer base to make a B2C platform viral in most industries. Yes, Facebook, Twitter, and MPESA have spread like wildfire, but that’s about it. (And let’s not call MPESA a startup people, please.)

Just my two cents – I’m sure there are a lot of opinions about this out there – and go ahead and comment with yours!

Current mindset

So now, whenever we think about rolling out a new product, or feature, we think about who is going to pay, and who will be the most valuable client. I know that if I pay a sales guy $10 to get a client that only gives us $20 over their entire lifespan with us, that is less valuable that a client I pay $1 to acquire and has a lifetime value of $1,000.

This isn’t to say that I don’t value growing our network virally and getting the smaller, harder to reach guys on board. But they shouldn’t necessarily be your first customers.

We also ask tons of questions in every sales meeting we have, and make sure to convey the value we bring clearly and confidently.

Final point

Total addressable market is not just a slide you throw into your investor deck! It should be something that is always in the back of your head whenever you make any significant product/service decisions or developments AND when you are figuring out who your first customers should be.


These are my thoughts on getting your first customers and how to think about the whole process. I hope they are helpful! Please let me know via the comment section below if this has been helpful and if you have any questions.

This was our latest post in Founder Fridays, where we dig into the story of Duma Works and try to tease out some valuable insights to share. If you loved this, you can also read our last post on fundraising in Kenya.

Enjoy, and see you Friday kutwa! 😉

Fundraising in Kenya

I remember standing outside of our host family house in Nakuru, next to a cow and a few chickens, talking on the phone with a mentor of ours who would soon tell us that he wanted to invest in DUMA. At that point, Christine and I were huddled around the phone figuring out what having an investor would mean, and feeling both excited and terrified.

Competitions are King

As everyone knows, a startup cannot move forward without capital.

Because we started DUMA in University, we were exposed to many opportunities to win money with no strings attached. Sometimes the winnings even came in the form of giant cheques.

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DUMA began as a sah-weeeet idea in Startup Weekend, and we took home our first prize money – $750. YESSS. That got us server hosting, and led the way to many other competitions.

Incubation + Free Money = ❤

We were accepted in the spring of 2012 to join Princeton’s first accelerator program through the Keller Center for Entrepreneurship, the eLab. Given that the dream of many Princetonians is to follow their passion of consulting, the eLab needed to incentivize students to stay on campus over the summer rather than go to NYC for internships. They did so with a $4,000 stipend. That’s $8,000. Boom.

Thanks to student groups and entrepreneurship listservs, Christine and I were lucky enough to find out about a few competitions with Ashoka, Intel, and MTVu – which we then won. We even got a mention in Forbes!

With the $20,000 or so we had raised at that point, Christine and I bought round-trip plane tickets to Kenya. September, we landed in Nakuru in our new homes, to launch DUMA.

That’s when we got the phone call in the cow pasture and launched into the world of angel investors.

Calling All Angels

A few things we learned –

1- Company set-up – Angel investors are more likely to invest in US-based companies, so to all the Kenyan startups out there, if you are planning on raising money from outside Kenya, check out a Delaware C Corp.

2- Accredited – If you plan on raising from an institution (eg. VCs) later, you should make sure all your angel investors are accredited, so there are no complications down the line. A lot of crowd-sourcing platforms can cause issues for accreditation, so make sure to check into that before receiving crowd funding.

3- Stage – Angel investors come when you have an idea, but no real product (yet). They believe in your dream and are incredible resources.

For our seed round, we chose to raise with convertible debt. Convertible debt means that you are in debt – but instead of giving them back money, you can also give them back equity stake in your company.

As a note – you can also raise a seed round from a VC, but we didn’t – Cool Kahn Academy video here.

To Debt or Not to Debt

Startups often raise convertible securities (convertible debt or convertible equity, for example) when setting a valuation for your company is a challenge – usually when you are pre-revenue and can’t say – “Well, I’m making $100,000 a year, and typically startups in my vertical ie. e-commerce, hardware, etc. get 5x multiple for their valuation. Therefore, my valuation is $500,000.” (Not that I think early-stage startups should be valued only for revenue multiple).

There are a ton of articles about convertible debt online. You can find some here and here. Just keep in mind a lot of these articles are debating the merits of convertible debt in relation to giant rounds – millions. Your considerations will be different if you are raising $100,000.

Convertible debt is cool because you don’t have to set a valuation. But typically, you do put in a market cap, which you can read about here & here from people much smarter than me. It’s essentially a clause to make sure your convertible debt investors don’t get screwed with a $100M valuation and get 0.00001% equity stake in return for their early belief in you.

So that was our convertible debt round. We LOVE our angels. One, we met at that first startup weekend, one we met at Princeton through technology-for-development circles, and all are family of some sort. And they are super supportive.

Welcome to the Grant Life

At some point, one of our friends from Princeton (shout out, Eleanor!) told us about this awesome opportunity to apply for a grant from the Rockefeller Foundation Centennial Innovation Challenge. This grant targeted companies that leverage SMS technology to help connect informal sector workers to jobs (hello, DUMA!). So we won, along with 9 other mission-driven organizations, and it was great.

Screen Shot 2015-05-15 at 11.48.07 AM

For us, the grant was important because it helped us flesh out our plan for building our SMS-based screening test to pre-screen people for jobs. It could not have been better timing.

Real-time Update!

The next step of our fundraising process is ongoing. We are currently raising a series-seed round. That is a cross between a seed and series round in terms of documentation and legal work. We decided to raise from angels and family funds rather than VCs. The reason we decided not to primarily target funding from VCs for this round is because typically, VCs come in at a later stage, when you have solidified your growth model, and you also typically raise a huge sum of money from VCs (often minimum $1M) in order to grow super quickly. And they usually don’t want to put in too little money, because they want to get a big enough chunk of equity. That being said, certain VCs do put in money at an early stage, and at smaller amounts.

Given our round size and targets to hit from this investment, we weren’t ready for VC yet. So for a Series-A round, yes. And most likely, it will be to expand outside of Kenya.

Wrap Up

So that’s how raised funding! There are multiple ways to go about it but this is our story.

I had a ton of questions around fundraising while were were going through the process initially (and trust me, I still do). So if you are also someone with a lot of questions, write a comment and I’ll get back to you about my thoughts. I am definitely not a professional, so for anything over my head, I can refer you to an article from an expert.

Last Thought

And by the way – remember that you don’t need to raise capital all the time. There are tons of articles about how to raise capital online, but many from investors and VCs – you can see why they would want you to seek funding…right? If you can build an awesome product, get paying clients, and immediately start reinvesting profits into growth, you are good to go!