How Uber, Airbnb, and Etsy Attracted Their First 1,000 then sent them a pitch to list on Airbnb
Airbnb as well. The
Customers
New businesses often struggle finding their first
customers. The challenge is even more difficult with
startups in the sharing economy that launch as platforms
connecting independent service providers with
consumers. Take Uber. Its platform is two-sided,
connecting people who need rides with people who have
rides to offer. (Same idea as Airbnb, which connects
people needing rooms with home-owners.) So to launch
as a platform service, these companies need to find users
on both the supply and demand sides.
“POACHING CUSTOMERS IS SOMETHING ALL
COMPETITORS DO IN DIFFERENT WAYS”
“When you have a two-sided platform, you have to
acquire both the customers and the services,” says
Harvard Business School’s Thales Teixeira, Lumry
Family Associate Professor of Business Administration.
“It’s the classic chicken-and-egg problem,” he says. You
can’t have one without the other, but which one do you
find first—the customer chicken or the service egg? “As
a small company you cannot afford to focus on both with
the same amount of effort. You may need to prioritize
one side.” Preparing to teach a new course on e-
commerce marketing next spring, Teixeira made it his
goal to find an answer. He studied three of the best-
known and most successful startups—Uber, Etsy, and
Airbnb—hoping to find some commonalities in how
those businesses solved the dilemma.
Airbnb, Etsy, Uber: Acquiring the First Thousand
Customers, all three platforms concentrated on getting
the service side of the equation first, customers second.
But there’s a catch. “It’s not just the chicken and the
egg, you also want to select the right eggs,” explains
Teixeira. “If you acquire the wrong eggs and ostriches
come out, then you are in trouble. The chickens will run
for the hills.”
LESSON ONE: THINK LIKE A CUSTOMER
From the beginning, it was clear to the founders of
apartment-sharing site Airbnb that they’d need to find
people willing to list their homes before finding people
interesting in staying in them.
“If you don’t have a supply of houses and apartments,
people are not going to come,” says Teixeira. The
problem was, where to find people willing to let
strangers stay in their places. It’s not like they could go
around San Francisco knocking on doors.
Instead, founders Brian Chesky and Joe Gebbia thought
like customers themselves, trying to figure out where
they would go if Airbnb didn’t exist. It didn’t take them
long to figure out the answer: Craigslist. The
entrepreneurs figured they could do a better job of
making apartments appealing than the online classified
site, but first they had to siphon away its customers. To
do that, Chesky and Gebbia created software to hack
Craigslist to extract the contact info of property owners,
strategy worked. With nothing to lose, property owners
doubled their chances of finding a potential renter, and
Airbnb had a ready supply of homes with which it could
attract customers.
“Poaching customers is something all competitors do in
different ways,” says Teixeira. “If you are a website and
you are providing content to users publicly, others can
grab that information.” It’s not enough to just take
someone else’s customers, though, he warns—you’ve
got to give them something better than they had before.
LESSON TWO: CREATE A BETTER
EXPERIENCE
Once they had apartment owners on the hook, the
Airbnb founders realized they had a problem: the subpar
photos that property owners were taking for Craigslist on
their iPhones would never work for customers looking
for an alternative to a hotel.
“The first time a person goes on Airbnb, they are
comparing the quality of photos to hotels that take
glamorized shots,” says Teixeira. “They needed to
compete at that level.”
In order to do that, Chesky and Gebbia did something
that would never be scalable: hired professional
photographers to go to property owners’ homes to take
inviting pictures. The gambit worked, making the site
much more attractive than the competition, and setting a
standard for photography that later property owners rose
to match in order to compete against other homes.
“The underlying principle of this is you should help your
suppliers portray themselves in the best way possible,
even if that is not scalable,” concludes Teixeira. “If you
don’t have customers, there is nothing to scale.”
Ride-sharing app Uber pursued a similar strategy. Rather
than starting out with Uber Pool or Uber X, in which
drivers use their own cars, the company started with
black cars driven by professional drivers. That way, they
could ensure that customers would have a great
experience virtually every time they used the service—
and they could then rely on customers to spread the news
of that experience by word of mouth. “That’s why you
get the supply side first—if you get the right suppliers,
the customers will experience their high quality service
and then do the marketing for you,” says Teixeira.
Etsy also pursued a decidedly non-scalable strategy in
finding the right eggs with which to launch its business.
The platform, which serves as an online marketplace for
craft vendors, started its business with an offline
strategy: scouring craft fairs across the country to
identify the best vendors at each, and pitching them on
opening up an online store on the site. “They first
brought their customers, and then they brought other
artisans who followed the customers.” Once Etsy had the
first-tier artisans on the site, the next tier naturally
followed them.
LESSON THREE: SEQUENCING IS
EVERYTHING
Uber and Airbnb were also smart about how they chose proactive and control the acquisition process, which
to expand, picking the right cities at the right time to word-of-mouth does not allow for.”
maximize their success. That’s where digital marketing can help, allowing
Since Uber’s main competition was taxi cab companies, companies to target specific customers through search
the startup researched which cities had the biggest ads or social media at a low cost.
discrepancy between supply and demand for taxis. They “It’s highly targetable and you can do it on the cheap,”
then launched during times when that demand was likely says Teixeira—adding that digital marketing also makes
to be the highest, for example during the holidays when it easy for companies to rapidly iterate its advertising
people tend to stay out late partying. It also ran message, tweaking it to figure out what works best.
promotions during large concerts or sporting events, “Only after passing the millionth customer can you go
when big crowds of people all needed cabs at the same into advertising on traditional media. That’s when you
time, and an individual might be more likely to take a need massive scale, so you go to mass marketing.”
chance on an unfamiliar company named Uber. As a company grows, it must consider the purpose of
In that way, the company acquired a large group of advertising in order to achieve the best effects in gaining
customers in one swoop. “First, they figured out how to new customers.
get a bunch of customers all in one night, when the “Some tools are better for the beginning, some are better
demand was high. Then, they made sure this first group when you are bigger,” says Teixeira. “It’s not about,
of users had a great experience and brought in the next should I use digital marketing or word-of-mouth or TV
wave of customers via word-of-mouth,” says Teixeira. ads. The question only makes sense when you say, 'I am
The company banked on the fact that once users realized at this stage, what approach should I take?' Only when
how easy it was, it was only a matter of time before they you answer that question will you know what tool is
started using it to go to work, then shopping for most appropriate.”
groceries, and so on. In other words, he says, “You need the right size of eggs
Airbnb followed a similar strategy with its rollout, for each stage of your nest.”
launching in Denver in 2008 to coincide with the lack of
hotel space during the Democratic National Convention
and adding new cities at times when they had major
conventions or other events.
In addition to the obvious demand, the strategy has
another benefit: “Your competitors don’t see you as a
threat, since you are not taking away from their
demand,” says Teixeira. By the time you have a foothold
in the marketplace, it’s already too late for them to do
anything about it.
Launching in situations of high demand and low supply
also helps startups acquire the right type of customers—
those early adopters who might be more forgiving of a
company while it works out the kinks. After all, beggars
can’t be choosers, and if you are thankful to even have a
room during a conference, maybe you’ll forgive the lack
of hand towels. The last thing a company wants during
its early phases is negative word-of-mouth.
“You are still a startup,” says Teixeira. “You have to
find people who are willing to accept your flaws and cut
you some slack. Satisfying all their needs and wants is
just not feasible at this early stage.”
Next Lesson: From 1,000 to 100,000,000
With early adopters in place, a company can start
thinking about how to expand their customer base
through more traditional means of marketing.
For each stage, the strategies should be different. While
word-of-mouth might work for the first thousand it’s not
going to get you to a million. “You have to be more