How to Turn One Thousand Customers into One Million

Few companies in the past few years have rocketed to success faster than Uber, Airbnb, and Etsy, which together have transformed the way we hail a cab, plan a vacation, and shop for handmade gifts, respectively. “Airbnb maintained a culture of testing many features on its website and soliciting feedback from its most loyal and vocal customers”

As impressive as that accomplishment was, 1,000 customers is hardly enough to ensure long-run success. For that, these companies had to scale up dramatically, from 1,000 to over 1 million. Importantly, the strategies that made these companies successful starting out are not the same ones to take them to the next level.

To get from zero to 1,000 customers, the three startups faced a chicken-and-egg problem: How could they attract suppliers if they didn’t have any users? For example, how could Uber recruit drivers with only a few customers, and at the same time, attract customers if there were no drivers? How could Airbnb convince potential room renters to join its platform without a large catalog of potential places to stay?

To overcome those challenges, the startups followed similar strategies, initially focusing more on the supply side than on the demand side.

In addition, they worked hard to find early customers by matching them “by hand” with early suppliers (e.g., Etsy scoured craft fairs to sign up artisans); acquiring them in bulk (Uber ran promotions during concerts and events); and doing whatever it took to make their offerings attractive, even if it wasn’t scalable (Airbnb hired professional photographers to take inviting photos of hosts’ apartments).

Following those guidelines, they were able to gradually improve their products and identify what made them resonate most with customers and suppliers. Only after that was scaling a possibility, requiring a gradual—not abrupt—shift from catering to the supply side toward catering to the demand side.

Building on the initial 1,000

After surpassing 1,000 customers, organic opportunities for the companies to acquire more customers and suppliers in bulk became increasingly rare. So Uber and Airbnb turned to digital marketing as a targeted way to reach new people. Unlike traditional mass media advertising, paid digital media such as Google search ads, Facebook ads, and YouTube video ads offer many benefits that make them better suited for platform startups.

Among them are low setup cost, allowing companies to start advertising for as little as $10 a day; precise targeting—to specific demographics, or based on life events such as birthdays or similarity to current customers; short creative development time and deployment of ads within minutes; and ease of experimentation.

Taking all these factors into account, a startup can create dozens of ads within just a few days, and learn quickly and cheaply what is most effective to attract suppliers.

Uber, for instance, made extensive use of online advertising in various social media platforms to recruit more drivers. It created a model to understand and identify factors that caused individuals to be interested in signing up to be a Uber driver. Were they part-time workers? Did they own a car? Were they in cities with low wages or in cities with high unemployment? (In fact, given its extensive data on drivers, Uber today is arguably as well informed about low-wage workers as the US Department of Labor.)

By gathering this information, Uber was able to use the online ads to identify the right drivers.

Etsy followed a different track. Rather than market through digital media, it let suppliers do the advertising. To do this, it provided support to the sellers to market their crafts and in turn, market the Etsy platform to their loyal customers. Etsy created a “Seller Handbook” and other internal management tools for sellers to better process orders and stay in touch with customers through integrated social media. Eventually, Etsy fostered an ecosystem of more than 150 third-party apps and tools to empower and support the sellers.

Shifting from supply to demand

As these platforms began acquiring new customers using digital marketing and social media, those customers started behaving differently from the early adopters who had been acquired in bulk or by word of mouth. In particular, they were not as forgiving of lower-quality products and services, and not as willing to pay premium prices for anything less than perfection.

To retain these new customers, platform entrepreneurs needed to deeply understand their needs and wants—and how their offering was differentiated from others in the market. One obvious way to do that was to ask customers what they wanted. As Airbnb cofounder put it, “People told us what they wanted, so we set off to create it for them.”

Airbnb maintained a culture of testing many features on its website and soliciting feedback from its most loyal and vocal customers. What the Airbnb team learned: If you provide a channel and listen, people will tell you what they want once. But to get that a second time, you need to quickly respond to their prior requests.

Very quickly, they learned that cleanliness mattered, so a cleaning and laundry program was created to support the hosts. Trust, they realized, was another issue, so Airbnb Social Connections was introduced, which leveraged customers’ social graphs via Facebook Connect so that hosts were no longer anonymous. Finally, they realized that price was important, so they concentrated on growing in cities with high priced hotel rooms, where hosts could charge from 30 percent to 80 percent lower prices than hotels in the same location.

While that kind of direct feedback was helpful to Airbnb in shaping its offering, it wasn’t enough for Gebbia and cofounder Brian Chesky. In order to uncover more opportunities for improvement, they made the unusual move of using their own services, envisioning a perfect experience and working backward to see what needed to be changed to meet that vision.

Those two paths—asking customers what they wanted and building it forward, and envisioning the perfect experience and creating it backward—aren’t an either-or decision. As Airbnb’s experience shows, both approaches should be followed jointly.

Write a market expansion playbook

By first going after the supply side and then shifting to the demand side, all three platforms gained traction in the markets they initially entered. At that point, however, they faced a critical decision in the life of every platform business: where and how to expand. Few startups answered that question better than Uber, which ramped up its business incredibly fast.

Having proven the original business model in San Francisco and New York City, Uber’s founders realized that in order to choose their next target cities, they needed to understand the “accelerants” that worked as tailwinds to catalyze adoption by customers in a particular locale. Analyzing their successes, they distilled the factors down to a few, among them density of restaurants and nightlife, destination for holidays and events, availability of strong sports franchises, and temporary bad weather.

Together, all these factors ensured a steady stream of people who went out at night either to drink with friends or to attend concerts and sporting events and wanted to avoid the hassle of parking or looking for a cab on a rainy or snowy night. That was the case for Chicago—a city with a great nightlife, intense weather, and tons of sporting events—where Uber’s initial viral growth was double that observed in other cities.

These accelerants became the basis of Uber’s market expansion playbook, and were some of the factors it looked at to drive its launch as it expanded into new locations.

Shifting away from what worked

Going from zero customers to 1,000 customers can be a slow process for platforms because of the need to acquire both providers and customers of products and services in a balanced manner. By contrast, going from 1,000 to 1 million can be a fast ride—but only if companies are willing to shift their tactics to try something new. The strategies that incentivize early users to join are fundamentally different from those required to scale up the platform.

The hardest decision faced by any growing startup is when to abandon the actions that made it successful in the first place in order to achieve more success in the future. Failure to do so at the right moment may result in a strong reduction in the momentum of the company. By contrast, having the courage to change in favor of new marketing strategies can help a company succeed in the long run, and position it for even greater growth going forward.