Launch to Love: Acquiring the first 100 customers that love you with YCombinator’s Kat Mañalac

Last month, as part of our Product Market Fit Academy, we hosted an office hour with Kat Mañalac, Partner and Head of Outreach at YCombinator, focused on how to find the first 100 customers that love you.

For early-stage founders, you can join the Emerge PMF Community to access more practical insights from the world’s leading edtech and future of work operators, here.

By the end of this article you’ll understand more about:

• The founder’s role in customer acquisition and retention
• How to find your first ten customers
• Scaling from your first ten to first 100 customers
• Creating a customer feedback centric culture throughout a team
• What investors like YC look for at seed stage

An unusual journey to YC

Kat has an unusual background for an executive at YC. “The majority of group partners and executives at YC are YC alumni; they’re founders that have gone through the YC programme, exited from their companies and are now building programmes within YC.”

For the four years right out of college she worked at WIRED Magazine, where she fell in love with startups. “What I loved about WIRED is that it was focused on the intersection between technology and culture. Back then, it talked a lot about ‘What’s next?’ and ‘How is technology impacting all these different sectors?’. WIRED was around before the whole concept of “software eating the world” existed.” Through WIRED, Kat met the founders of Reddit, Airbnb and Kickstarter, right when they were first getting started. “I loved how fast these founders were moving, how ambitious they were, how clear their vision was.”

Soon after joining WIRED in 2008, during the first big economic downturn in her professional career, Kat watched many people being laid off from media, magazines, and WIRED itself — leaving her wondering what she should do next. Kat would trade startup ideas with Reddit’s Alexis Ohanian, and eventually, he told her that he was starting a fund and asked her to join as Chief of Staff. She jumped on board and worked with Alexis for two years which was, as she puts it, “one of the best educations in online community building that you could get from a human on the planet”. As of January 2023, Reddit is the 7th-most-visited website worldwide and 4th in the US (Semrush). Kat learned early on about what it takes to get to that position, whilst working with Alexis as he started to build out his angel investing portfolio.

Get close to your first users

Kat’s journey at YC began in 2013, when she was recruited to help expand its reach. “Most founders who had heard about YC had come through Paul Graham’s Essays, Jessica Livingston’s book, or Hacker News,” she recalls. “YC’s founders Paul Graham and Jessica Livingston realised that they needed someone to think about where to find smart, hard-working people around the world, who perhaps hadn’t even considered startups as a viable path.’” That’s where Kat stepped in to expand YC’s audience.

A central focus of Kat’s team is helping the companies in the batch launch and acquire their first users. Her team has helped thousands of companies to date. With her extensive experience, Kat has a wealth of insight on what it takes to succeed and win the hearts (and business) of customers in those critical early stages.

One of the most important pieces of advice she gives to founders is to be right alongside their customers, working closely with them to test and improve their product or service. This, Kat notes, was a key part of the Collison brothers’ success with Stripe.They would sit next to customers, install the software, and observe how customers would use it. This hands-on approach is crucial in the early stages of building a startup, when finding product-market fit is still a work in progress.

Once you’ve identified your target customer and honed in on your value proposition, the hard work of actually acquiring those first customers begins. At this early stage, there is a lot of value in the community. “YC companies or companies that are in any tight community have a bit of a leg up,” Kat admits. For example, Brex (easy-to-use corporate cards and spend management software) would go to YC dinners every week and they closed their first ten customers from that community. “They could just walk into a room of founders and meet hundreds of potential customers.”

Even if a startup doesn’t have access to a ready-made community of potential customers, there are still ways to acquire them through cold outreach, which involves a lot of prospecting. However, Kat often surprises early stage founders with the sheer number of cold calls they will need to make to land a single customer. “Okay, you’ve talked to X number of potential customers,” she tells them, “you need to add a zero to that.” It’s difficult to overstate the amount of outreach required to close even one customer. Kat recommends a talk on how to get your first customers by YC Group Partner Gustaf Alströmer, who was previously a growth lead at Airbnb. He explains that an outreach to 500 potential customers, with a 50% open rate, may still only lead to two closed customers. The talk is definitely worth watching and demonstrates that, even with an excellent product, closing those initial customers is really a numbers game. But by tracking metrics, such as outreach, open rate, reply rate, demo conversion and close rate, you can get a better idea of how long it will take to get to your first ten paying customers. It will also help you narrow down which part of the process needs the most work; the initial email, the demo or closing.

To apply:

• Work closely with your customers to test and improve your product.
• Being part of or building a community can accelerate your customer acquisition.
• Cold outreach is a numbers game: track your metrics to get an idea of how long it will take to acquire your first ten paying customers, and where in the process to improve.

From first ten to 100: scaling your customer base

“At YC, we say during the three months that you’re part of the programme, the only things you should be doing are: building your product and talking to users. You should then take that feedback from users and iterate your product.” Kat often works with technical founders who prefer to be building rather than selling or talking to customers. However, what she has seen work the best in the early stages of a company trying to reach its first ten to 100 customers, is when the founders are really involved in talking to every single user. “The best founders do this for more time than you would think is reasonable. If I had to boil successful customer acquisition down to one thing, I’d say you should be laser focused on solving your customers’ problem.”

Once you have your first ten customers, the question then becomes how you scale from there. “In your first ten customers there must be similarities. Founders should talk to each one of those first customers and figure out what they have in common.” Kat shares. “Why do they use you? Why do they love you? Why do they keep coming back?” Once the founder has narrowed it down, they can find the next 500 customers in that segment and reach out to them.

The next consideration is how to keep your early customers engaged and transform them into your biggest advocates. Kat notes that there are multiple ways to do this. She has seen companies create communities of their early adopters and biggest advocates, others have product councils. For example, at Airbnb, they have focused on creating an excellent experience over the years for their Superhosts, with a dedicated programme that celebrates and rewards their top-rated and most experienced hosts. “Even in their earliest days, when very few people used them, Airbnb put on events for their hosts in different cities. They would only have a couple of customers come to these events early on, but over time they grew that community.” Another channel she has seen work well recently is Discord. For example, OpenSea, the largest NFT marketplace, has a strong community on Discord, as does Emerge portfolio company, Studystream, the largest online community of students studying together live. Both have Discord communities in the hundreds of thousands.

Kat recounts her experience buying food recently from an online Asian food market, where the founder reached out to her shortly after her order to ask for a 15 minute customer interview. Kat was delighted to jump on a call. She notes that early adopters are often going to be excited to receive a personalised email from a founder. “Even I’m not jaded. I still got excited by this,” she laughs. “Of course, you have to hit the right person. But I can’t overstate the importance of the founder reaching out personally and being involved in doing this type of work versus having a salesperson or someone else on your team do it.” Many of the best companies continue to do this after they have scaled and the founder continues to be involved with customer interviews, even when they have big sales teams. At Wufoo, a company started by a former YC partner, right up until acquisition, everyone was involved with reading customer feedback forms — including the founders. Kat shares, “The founder of Wufoo would often talk about how he was a designer and developer, and he had really strong opinions on designing the product in a certain way. But when he was forced to read customer feedback, he realised his opinion was sometimes wrong, when a number of customers called him out on it. So they iterated.” Ultimately, customer feedback needs to impact your process.

Whilst the founder must lead the charge on collecting user feedback, it is also important to involve the product and design team in this process to create a user feedback centric culture. To do this, Kat recommends involving those teams in the process of reading customer feedback, and making every single person in the company involved with talking to customers. She advises founders to collect all their feedback in one place, “You don’t need any fancy tools, you can just use Google Docs, but it’s about collecting everything in one place and then having people on your team focused on trying to synthesise the learnings from that data, the repeated trends, what this translates into on the product roadmap. Everyone must be involved in understanding customer feedback. It helps them understand that they are solving a real problem for real people.”

To apply:

• Once you have your first ten customers, pinpoint why they love you, to find the exact customer segment with which to scale outreach.
• Early adopters can be transformed into your biggest advocates through creating communities, hosting events, or using channels like Discord.
• Customer interviews are crucial; founders should involve everyone in the company in the process of collecting and synthesising customer feedback — which must impact the product roadmap.

Seed stage: it’s all about founders

At this early stage, sometimes pre-product market fit, it can be challenging to make decisions around who to admit to the programme. At the seed stage, Kat says they’re really looking at the founders — the idea matters less because they know that ideas often change at this stage. They do consider the idea’s potential — whether they believe that the idea could plausibly become a billion dollar company — but beyond that, the focus is on founders and team. “Do the founders have the technical ability to build what it is that they are pitching us? Do they have a well-balanced team? Can they both build the product and can they sell it? Are they good communicators? Can they describe what they do, even if it’s very technical in ways that anyone can understand?”

In her experience, the more deeply a founder has thought about a problem, the fewer words they can describe it in. Looking back at the top 100 YC companies, Kat notes that every one of their applications was really well-written, concise, with absolute clarity on what problem they’re solving and who they’re solving it for.

“We’re getting 17,000 applications every six months. We fund hundreds of companies. We fund companies working on ideas that we don’t even necessarily think will work, but we think these founders will pivot and figure something out.” They’ve funded so many companies and reviewed so many applications, that they often see applications crowd around popular idea areas, with founders interested in similar problems. But that’s not necessarily a deal breaker. “When we’ve seen so many things not work, we try not to over-learn. We try not to say “We’ve funded ten of those, so it’s never gonna work.” But what we try to figure out is has the world changed? Do these founders know something new? Are they approaching it differently than the hundred other founders that we’ve just talked to that are solving this problem?”

Similarly, for founders going after difficult customers, perhaps ones that take years to close, it’s not a deal breaker. Kat says that they just have to really believe in the team’s ability to make it work. “For example, we funded Boom, which is a supersonic passenger jet. We knew that they wouldn’t have a working product in, in three months or a year and they wouldn’t have full customers within that time either. But by demo day, they closed a $5bn LOI from Virgin Galactic.” That was enough to give investors confidence that the team had enough aerospace experience — and that they could sell. “You just have to get people over that belief hump. They have to believe that you are the team that can build this and sell this — and you need to do what you can in a short amount of time to prove that.”

To apply:

• Practice being able to explain your startup concisely and clearly, with no jargon.
• Competition isn’t everything: have a clear thesis as to what you know that others don’t.
• Build a track record — whether it’s through early users with strong MoM growth or LOIs from large companies — to push investors over the belief hump.