Aug. 21, 2020

Double exit founder's thoughts on early user acquisition - by Dan Held.

Dan Held, Growth Lead at Kraken Digital Asset Exchange with two companies sold explains how to acquire your first customers and why paying for your first customers might be a bad idea. We discuss few particular ways of being "cheap and scrappy" in user acquisition and talk about low-budget startups in this episode.

Dan's LinkedIn: https://www.linkedin.com/in/dheld/

Kraken Digital Asset Exchang: https://www.kraken.com/

Episodes about blockchain fundraising: https://www.fundraisingradio.com/category/blockchain-investing/

Office hours with Make it Studio: https://make-studios.typeform.com/to/bUvZoSwl - it's time to get some extra questions answered.


Transcript

Alright so this is fundraising redo and today's a guest speaker we have done helped the growth lead at cracking digital asset exchange, and then also sold two of these companies in the group. 

And today we'll talk about those agents, and also about this growth focus that has, and also about find the product market fit. 

So, Dan, Alaska code by you giving us some background on yourself and on interchange the most recent company that you sold. 

Yeah, thanks so my background started out in the crypto space in twenty twelve build one first products and thirteen didn't really know what I was doing at the time and sort of stumbled on Bumble. 

My way to tech started out by building a mobile product called zero block, which was a price tracker. You can imagine with the volatility of Bitcoin people check the price a lot. 

So, the stickiness of the product became really sticky sort of stumbled my way into tech. 

That was my for a product management over the course of the next seven years was a no, I found myself in a few different roles of product management and product marketing. 

So that also include by product marketing, growth, marketing that, I think, kind of builds the base for me, being a growth guy, those growth products and growth marketing. And that's what I'm doing over at cracking, which is growth lead. 

I'm looking at how to efficiently take a user from awareness to growth marketing awareness through sign up or install. 

So it's more user acquisition and then all the way through inside of the product to make magic first trade. And that's this is a team of people. I'm working across a couple different functions there and that's what I'm working on now. 

Yeah. Stumble the mobile memory through tech. I had a couple of acquisitions, maybe focused on the mobile side, but done a lot of both rapid and mobile mobile work and yeah, I think that's, I think a summary of what I've done. 

Perfect, really for Dan's bio so let's start with those two acquisitions that you had and let's start with the most recent one interchange. How do you happen? 

Do you actual plan for you or do you just, you know, if someone just email you say a, like, your company let's discuss the potential of acquisition at acquire net yeah. So I think there was a ton of synergies between cracking an interchange interchange was software. 

That's a fancy way of saying accounting. So some accounting software with crypto accounting is really complex. There were needs at cracking both for preference customers and tracking itself that we can solve. 

And so I think it's a really, really nice fit with our two companies and, and that's how it happened. I don't think that was like, you, it conscious linear effort from day one, then we were going to go, you know, be acquired by an exchange but right. 

Time replacement team we've also had a relationship with Jesse Jesse for seven years. You know, we're not best friends or anything, but we have a good relationship there. 

So, I think that that helps enable something like this, because ultimately with, like, a smaller team coming on board, a larger company. 
There's gotta be a lot of mash and fit there and so culturally in team function and we were a great fit for tracking. 

So, yeah, I would say it was more of a random thing that occurred, but happy that we ended up to we landed there and then I'm really excited to see. 

Background check problem who knows right? That that the background check one thing happening, but I'm just saying there's all sorts of little hiccups that could occur and there's not like this moment where they're like hey, we like you. Cool. Twenty four hours later. 

Here's a check. It's, it's a really long process, you know, weeks to months. So you're gonna be in a sort of like, you know, purgatory state where you're in, between both having an help, like being acquired or not being acquired. 

And depending on the state of the startup. You know, you might need to be acquired or you might need to go raise money. So if you're not raising money, this acquisition conversations have been distracting also with employees. 

You know,
when do you disclose this to employees because it's relevant information, but,
you know,
a lot of startup set acquisition offers popping,
it's not like they're really that frequent,
you know,
they just might be a different values and might make sense,
or might not make sense. 

So, startup founders get hit about acquisition mergers and other opportunities, decently often one of the real enough to go talks to the rest of the team about it. You'd want them distracted because they're still building. That's your problem. 

You know, we, we've had my experience have had acquisition deals, fall through so, you know, I would say, like, whenever you're approached with his opportunity, keep your expectations very level. 

Is just the movies, those stories of Silicon Valley, they just over glamorized the whole process and what's your major takeaway from the acquisition? 

I mean, besides the fact that might take long, and that's, you know, you shouldn't be like, way too excited because most of the acquisitions are really pretty small. What's your major takeaway besides those two things? 

You know,
I think if you if you have a good product process, and if you have a good team,
that makes a much more attractive, 
and that was a good components of of how we fit with these companies, you know,
when we're being approached,
we had great product team in terms of pedigree execution and, 

you know, 

making sure that everything's in the order. 

So, like, demonstrated and good product process, demonstrating good accounting and legal infrastructure like, don't have weird cap table, you know, stuff like that is more virtue later on. 

If you have a funky cap table, and sometimes the thought is, or we can clean this up later, but when it's time for an acquisition, you go to due diligence. You might not have enough time to go clean this stuff up. So I think that's really critical. 

Is keeping that in perspective, which is around just making sure your house is in order. Absolutely. Again, that's the type of advice. 

I got pretty frequently from people who got acquired, or from made acquisition on the site to definitely make sure that from day one you are. 

Keeping your books clean basically. So, let's talk about the fund raising. So how you got to the acquisition, how do you actually managed to raise your first initial rounds for the interchange? 

Yeah, so we raised a one point one point two million family friends round and Lisa, the team that was during the peak of crypto enthusiasm. So that was relatively easier raise. 

We a combination of cofounder, Matthew elegant and myself, we are the ones who is the most. We have deep connections with PCs. 

We weren't brought up for a VC check yet, but, you know, individual checks from a wide variety of both professional investors, angel, investors and friends and family and I actually, no family and actually raised from family yet. 

That's the thing. I'd like to stay away from. I think doing the high risk to start up. I'm not sure if I would advise going to family for that, because they're not gonna have this other taking and it also makes Thanksgiving and Christmas. Really? 

So, we didn't do that, you know, the people we raise money from are all professionals, even if there were angels, we weren't there first angel check. So these are people that I knew, and worked with that companies like Uber or, you know, small angel funds that are new over. 

The last seven years are going in Silicon Valley with the dinner happy hours with them and over the years developed a good relationship. It's all based on relationships after all. 

So that's the core bulk of we raised our money from these deep existing relationships, and Silicon Valley with professionals who have made their money at startups or professional investors. But all were professional in terms of cutting angel checks. 

So, like I said, worried about the first, you don't really want to take money from someone who's this is their first angel investment when you do that, you're gonna have to educate them as to what it means to be an angel and trust me. 
It's you don't want them breathing down your neck, you want someone who's a professional who understands? I'm making an extremely high risk investment, like many twenty of them. So you failing isn't going to be top of mind. Of course, you can play the failed, but they know that. This is high risk, high reward. 

That one out of ten will succeed. 

So, I think, you know, from that perspective, like, you go to the professional, even if you have money being thrown at you from individuals who see your family friends, or it's, your buddy from school made a bunch of money because you had a restaurant. 

He's just not gonna he, or she isn't gonna know the, the sort of mentality that they need to have for these type of investments. 

So, even if the money's easy, wouldn't taken go to the pros and go to the ones who understand the risks that they're taking much easier investors to deal with. And I think it will be, I think a little bit more. 

Well, rounded in terms of that relationship I'm totally on the same page with you in terms of not raising money from the family. I feel is just so weird to to, to ask family for money. 

So, I would recommend to stay away from that as well as just to personally. Guess. So, let's talk about your early growth. You now are, I mean, you're specialized. 

Basically that's what your major strength, how do you approach the problem when you were just Pre fundraising? 

I imagined that you started raising money from the initial one point, two million round you started when you already had some sort of traction rate he managed to get to that traction before you get any. Yeah. 

So it depends on the products. So interchanges be to be, we had to raise money before we found traction due to the nature of the cost a lot of money to build a tool you can't really go launching and and get quick feedback as as easily as we could with the consumer product. 

Consumer products are easier to launch a really dirty dirty would be, you know, this isn't a minimum viable product, but the product might be so viable. You're a little bit embarrassed. However, you didn't get there early, get your feedback with enterprise tools. 

Businesses don't wanna have built tool they want a fully built tool, you know, so, for them, I think that's very different in terms of how businesses want to use software with. 

With zero box, there was a consumer product. That was the first one the first product they built that acquired. We launched what we felt solve the pain points in the market. 

So, we were trying to check for life price of Bitcoin, twenty, thirteen and no mobile products at the time, have the life price. So that's what we built. We built the, the first live price tracker and had a newsfeed, which built a habit building, sticky loop. 

So, with that we built what we felt was solving a problem, or hypothesis was correct, people also felt that same problem. And that's what enable us to find early product market fit was solving our own problem hypothesizing that maybe a lot of other people have this problem too. 

You know, it's pretty intuitive as well. When you think about, you know, of course people want to check the live price when it fluctuates all the time. So it wasn't exactly rocket science there. 
I didn't formalize those product skills to understand how we had stumbled upon that success until later, but just being obsessed with solving the problem I think is a core fundamental product tenant tenet that people should have that obsession is what enables you to build something great. 

It enables you to reduce friction because you're obsessed with solving a problem. I think that's how great products are built in zero blockers night session interchanges a little bit different because we want to enterprise company. 

I'm just individual, but I had had early experience, intact software in the crypto space. So felt like I understood that there's a need there, which there is. There's a big pain point. 

But with this, we had to do more research and discovery of exactly how user flows worked for large enterprise customers. So, that was a little bit different because we had to go build our first, our building that we're getting feedback. 

And then that helps us build it. And then we're doing trials and then there's trials come to the customers. So it's a bit different experience. You're only having a few customers or dozens of customers versus tens of thousands or millions of consumers. 

So, quite of a different process, in terms of product development and finding product market fit. So, that those are the two different. That's how we approach. It was two different types of products, right? Yeah. So, let's talk a little bit more about achieving that product market fit. 

And growth, most of my listeners are actually precedes slash seed stage. Most of them they're baroque. 

So, one of the questions that I get pretty frequently is how do I get those initial, their first customers with pretty much, tiny budgets. So, like as little as thousand or two thousand dollars. Yeah. 

So that I think that's all my bread and butter in terms of what I'm good at. It's not a skill you can transfer get paid for, but it's something it's something that I've done before. 

So, you know, going back to the core, rooted a session and building something great, that obsession bleeds over into user acquisition. Where are your potential users? Where are they are they on Twitter or the on Facebook early on it? 

With Bitcoin there specifically on Twitter, right? Those are the two most popular channels that have it. So there's a couple typical strategies you can do. That are kind of boring, but everyone's doing them content marketing. 

Those worked pretty well write a blog posts. You cut it up in the pieces use place it across Reddit, Twitter, linked in, you do that consistently that can work. So it's like a social post content marketing strategy works. 

Well, but the, that's the boring stuff everyone can do those. That's a long process. 

So I'll tell you a few stories how I acquired customers, but these don't don't copy paste very well when you find an acquisition method for an early stage startup that's free but also, like, really creative. It's sort of like arbitrage. 

It's only going to exist for a brief period of time. A brace could be one month, one year or a couple of years, but you're sort of arbitrary attention. So you found some way to get people's attention for free and they're installing your products. 

But that's not gonna last for forever. And I'll give you a few examples. So, one was face groups and and what we did, if I had a mobile product built for finance called hover. 
So the mobile app for drone pilots or recreational drone pilots at its peak, twenty five percent of all registered Jewish drone pilots, use the. 

It's a pretty huge market penetration for or something we built for free and for fun Facebook groups back in twenty fourteen, you can join any Facebook groups as you wanted. 

And most of the haven't put in permissioning where you require permission from the to post. So, you just post and what we did is I joined hundreds of drum Facebook groups, and I posted about hover. 

I'm like, hey, to free up can get it. Now, of course, some people are he, none of their, like, spam and I'm like, it's not spam. 

If you'd like it, and also our conversion rate, like, our, our retention rate from acquisition methods from Facebook groups was higher than organic baseline because those Facebook groups are targeted towards strong. 

Busiest is the drone enthusiastic, joined those Facebook groups. So here's a phenomenal way to acquire the right type of user. It's a relevant network. 

If I posted in moms selling cookies, my conversion is gonna be zero attention. It's going to be nothing, but these are highly, highly relevant topic relative to my product. It was the right place to engage. 

A lot of people use the forms to talk back and forth, about parts, drone equipment, filming techniques. So it's an active community and the way I presented, however, it was tasteful. It was, hey, guys check it out. It's free. Tons of people use it. 

So, I just keyword stuff to title with with Bitcoin crypto, and we, we remember to for the word Bitcoin and so that brought us tens of thousands of installs. 

So that that's pretty cool. Right? Yeah, that's impressive. Right. To, after optimization. But now,
Apple has,
but now, 

Apple has clamped down on, like, 

the titles only I think thirty characters and apples search results are now really kind of funky in terms of how they display organic versus paid. 

So that's why I called these arbitrage moments. They don't exist for forever, but when you see them, you try it and you're like, wow, this works. You really, you know, these are great free methods to acquire users. 

You shouldn't pay for users and when you first start up, if you're paying for users, you're doing it wrong. You should figure out some scrappy way to get thousands or tens of thousands of users for free, whatever, way, possible, any way. Possible. 

There's still tasteful in relevant. 

And when you do that of giving a feedback loop, to make sure you sound product proper fit and on that, but never pay for users, in the beginning figure out super scrappy ways to to acquire customers record users. 
And I think through that, That'll be your initial feedback loop they need because it's a chicken and egg problem. If we don't have a feedback loop of users using the product. 

You don't know if you have product market fit, so we do it free do a scrapping nice. I think I just found the perfect title for the episode. Never pay for first users. That's that's awesome. 

I think that's really great advice. I mean, I personally trade may may scrappy ways. My room and Facebook accounts were blocked multiple times. 

So I had I tried that, but let's talk about the find that source of acquisition. So, later on, once you decide to scale this process, and you just can keep going and publishing those. 

Those things to raise, or Facebook to keep up the growth for month of users, how should you focus on one specific? I mean, how should you decide which resource basically, is the most profitable for you specifically? What? 

What should people look at? So, what's the question? Exactly. 

So, when you're deciding what tool to focus on, what traction channel basically, to go to focus on, like ninety percent of your force, what are the ones that should be determining? Yeah. 

So, first and foremost, you're gonna have to look at your bucket and make sure that there's no, it's not a leaky bucket. So, when you're requiring users, if they're all turning and you potentially eventually goes to zero, you know, over the course of a couple of months, you don't have product market fit. 

I think one defining product market fits hard. I think one of the easier ways to do it, but it's, it's always in retrospect, because retention curves are based on historical data is when you retention curve starts to flatten. 

So that means that over time, you know, eighty percent of people use day, one, thirty percent day, seven, twenty five percent, the thirty. 

And if they ninety is is flat, then I think you found product markets that are really declining. That's how I would determine if you found product market fit now, I used to know maturity time time, getting there for a couple months. 

It could be more than a couple of months because the users of your products may session differently. 

But that's how I would define, like, finding product market fit. So, if you're requiring users and they keep turning, then you give them some proper objects that you need to fix that first. 

And after you fix that, going out and acquiring customers, you're looking at, you know, I think when you're a small, scrappy startup, but you don't really need to focus too much on counting impressions or reviews. All you need to look at. 

Is are you getting f*** installs or sign ups? Like that's it like, who cares how many impressions you know, you can just eyeball it. 

You know, you're, you're trying to be really scrappy, and if you posted in, let's say, twenty Facebook groups, and you only got one install well, we don't need to run the numbers. We know. What's up? 

We know it's not working, you know, so, if you find that it's working, you're not really focused on optimization at this point, because you're still trying to find out local Maxima. 

You know, you're not, you're not really focused on, like, getting one percent higher conversion, because we're just trying to get the word out there and see who who installs the app or signs up. And 
you're just going across any method possible figure that out when you hit it. 
If you're gonna know okay this worked. Now, if you want to continue to mind that vein user acquisition, and maybe there should be some thought around conversion. 

So, looking at your view to install rates or your impression to sign up or something like that. So that's when you would focus on keep your eyes on that. Other than that its finger on the wind. 

When you when you strike gold, you're gonna know it, but yeah, that's it. That's how I get through it. Yeah. Perfect. I mean, don't get too focused on those metrics that, as you said, when you hit the right one, you'll you'll know for. Sure. 

So, let's go to the last two questions of that is go first one love founders. Now we're trying to start their companies and the question is, should I actually, what should I do about the fund raising? 

Should I wait until the pandemic is over or should I actually go out and start trying to fundraise now? What's your advice on that? That's a great question. 

I'm not sure if I'm qualified enough to get people advice as to how they should approach them but I can give you my opinion. My uninformed opinion. You know, I think there's been a lot of VC money already deployed into funds. 

So remember vc's raise money too. They raise money from a bunch of other investors, big pension funds and governments, and then they have a mandate to allocate that money. So VCs need to go allocate that money to startups. 

They have to do that within a certain timeline, 

which means they have to invest in startups even if it's if it's a, 

you know, 

if there's a bear market and so I, 

I wouldn't worry too much about this impacting the source of of money on the fundraising world now, 

when it comes to angel checks, 

you know, 

if you're trying to if you're just getting started, 

it might be a little tougher because investors are hesitant because their personal finances are a little bit down. 

So that might be trickier when it comes to fundraising, finding traction first and then fundraising is a whole lot easier to do. 

Otherwise, we're constantly selling the dream, the best salesman in the world, if you want to sell that, you've gotta be the Steve Jobs ability and story. 

Tell you're telling the story, you're painting a picture of the future, and if you're raising money without traction, we have to paint that picture perfectly and it's gonna be a whole lot more pitches anything. I mean, no matter how you do it, whether you attraction or not. 

You're gonna pitch a lot more people than you ever thought you're gonna pitch, but it's a whole lot easier. Once you have some traction also, you know, when it comes from the evolution standpoint, 
ultimately, we want to have more traction. 
And unless hopefully you get more or less, if you prove out their concept versus someone betting on you, just from an idea, they might, you know, I think that gives you a stronger more defensible valuation. 

But, yeah, I think finding traction first just a better way to go for most entrepreneurs. So most definitely, I think that was a good advice, you know so good question there. I I forgot just one more question in terms of annual investments. 

So, usually, after the founders sell their companies that have some wildly successful exit, they start mentoring or doing angel investments for other smaller starts do do this as well or not the case. 

I don't that because they don't believe in it. It's just, I don't believe I have the the skills to go make to make the investment side. 

I built a lot of products, but I have not, I don't think that's the right mindset yet to properly filter evaluate, and then deploy capital into to angel investments also decline as opposed to be. 

So I've been in decline since twenty twelve in two, three ball runs. 

There's still a ton of a ton of growth potential for Bitcoin, so most of my network has right now, I believe, that, you know, for for example, big points market cap is only like, two hundred billion. That's tiny. 

Apple is two trillion dollars, and it's one company. Gold is like, fifteen trillion. So for big quantity goal to point oh, it's got a lot of room to grow. And for me, when I deploy capital into different things, I, for me. 

Quite phenomenal, because not only do you have incredible price appreciation so, like the returns, you would see at a startup the returns you would see as an angel investor and startup. 

But big point is independent on the operation over execution. I heard the startup. I know they have the team has to go well, you have to succeed in a competitive environment with Bitcoin. bitcoin's just has to exist. So, my risk reward profiles as much better. 

So, for me, right now, it's, it's almost all on Bitcoin, but after the next full run, probably take some of that, and maybe spin up a fund. And if I feel that I'm uncomfortable enough, deploying capital and understanding that risk taking. 

Perfect answer. I think that's like, great answer. Some people are just not quite, you know, the specific stage. So perfect. And I wish you best luck with Bitcoin. Not such a big fan, but now it's just different views. 

And last question is cultivation. What's the one thing that you want to do as soon as step is always over and this is for, like, small small start ups right? Mostly yes mostly preceed. 

I would say, take risk take really f*** crazy risk. If, you know, people worry about the optics of doing some user acquisition methods. 

Or, like, for example, like, when my girlfriend was looking for a job and tech, we would use email checkers. So we would essentially would apply to Facebook or something. Right? 

We would look on LinkedIn who the hiring manager would likely be and then we will take that name and then put it into an email generator, check this, or the email server to see if that was a valid email. 
And then we can cold email them, and the hit rate was like, eighty percent where they would reply to 
me. Awesome. Thanks for reaching out, like a top on the phone. So he would skip the recruiter screen and go straight to the hiring manager screen. It's stuff like that. 

That feels awkward. That feels a little bit weird. 

You know, you're like, this is crazy like, cold them to cold works or on Twitter replying to was like, an investor replying to a potential customer and being, like, you'll check out our products, like, be shameless. Go out there. 

Sell it be bold. Do crazy methods of acquisition like, even if you pop into your competitors, like, if your competitor as a forum. 

Or comments would pop in there and yeah, I mean, I love it. I mean, now there are better tools for for cold emailing. So you don't have to actually generate it anymore. 

So make sure you use nice resources but definitely perfect. If I, you know, people know to those weird things and be shameless, you know, if someone tells you, hey, stop spamming me okay. 

Working exactly. As just being a founder is being shameless. So perfect advice we're going to wrap it up here. My call to action is go to fund raising radio dotcom. 

There is a whole section on block chain, fundraising, and specifically acquisitions. There. There's one even, I think cool said acquisition. 

So, if you want to hear some, you know, sad stories about acquired companies, that's the place for you to look. So, have a great day, take a look at the description of this episode. I'll make sure I'll leave some contact information for Dan. 

So, if you have any additional questions, or we're curious to learn more, go to the description of this episode and have a good date.