Startups start small. Then they grow big.
Or at least that’s the way it’s supposed to go. The healthiest kind of growth is for these little bands of founders and early employees to go out to the market and convince others that they have a better, faster or cheaper alternative to something else out there. Along the way they’re meant to hire human beings who should pay taxes which can pay for things like schools and roads and parks that make good places great. This, in turn, is meant to make it easier for companies to attract from a farther, broader pool of talent, thus fueling ever more competitive environments.
When an ambitious founder is starting their tiny company, they might choose to locate near an investor that has offered an infusion of capital, or a mentor who offers unique insight or, if they’re really looking to the future, they might consider where they could hire a bunch of smart employees at a premium. But, really, that unit they most need is customers.
Last month, I was out of town at an industry conference when I bumped into Bruce Marable. He’s the smartly dressed and resourceful cofounder and CEO of Employee Cycle, an HR analytics dashboard. He’s just the kind of founder a city yearns for. He’s a student of the startup craft. He’s hungry to grow companies. He lives in Philadelphia and has volunteered for nonprofits around town. I first met him a decade ago when he was working on GatherDocs, which later sold to another HR tech company.
Marable is no slouch. So he caught my attention when he mentioned feeling like Philadelphia regional buyers are more risk averse than the prospective clients he pitches in another cities. Every company has to have a first, second, third and fourth paying customer before they can have an economic impact. Having heard variations of Marable’s gripe before, I told him I’d look into it.
After a flurry texts and a few emails — including one to a Philly Startup Leaders group — consider this an altogether unscientific first step in trying to understand if Philadelphia is a good place to start your company and gather clients.
I asked nearly 20 Philadelphia tech CEOs: What number customer was your first Philadelphia customer?
As expected, companies do get early customers locally, despite the common refrain to the contrary. Of the almost two dozen I asked, only four had to wait past their second paying customer to get their first local one.
Some of that is to be expected. Chris Cera is a longtime fixture of Philadelphia’s tech community — he was a cofounder of the aforementioned Philly Startup Leaders, now a nonprofit. After leaving his first company Vuzit, Cera launched his software dev firm Arcweb in 2012 with a local client, and now they’re at 35 employees servicing more than 90 clients. More recently, Ellen Thompson, who has grown her tiny creative consultancy ResultsRepeat over the last five years, launched a new adtech product called Jess. (Thompson notes that her “local” client is actually a company based in Reading but the buyer is a Villanova residents met through local ties)
It also seems that it might be that Philadelphia purchasers are getting more comfortable with using newer, less-tested startup technologies — typically sold as a chance for cutting-edge experimentation, more custom support and (for enterprise solutions) often at relatively lower costs. (Others try to help here; for example, the Economy League of Greater Philadelphia has a program that aims to introduced institutional purchasers to smaller local companies.)
Consider Bob Moore, who is now running Crossbeam, a data-sharing platform startup with 15 employees and a fat $3.3 million seed round of fundraising. Moore is now influential, established and well-respected here, on his third data-focused tech startup. His first customer was local. A decade ago, as an unknown first-time cofounder of data analytics firm RJMetrics, Moore’s first local customer was his 10th.
All buyers are cautious in their own way. If a city has no reputation for building with technology, a product or service coming from that place might be discounted.
Moore’s seen as an easy bet worth making now. That might help others.
RJMetrics alumnus Andrew Hoagland is now behind Vetd, a five-person startup launched last year to help its clients purchase enterprise software. Of his initial 10 customers, the first seven were all local. The newest of companies, including Shuttlebee and Swirl, two honorable mentions from our 2019 realLIST list of startups to watch, also reported local clients as their first or second option.
For Marable, who is on his second HR tech company, his first local customer for Employee Cycle was its seventh. He notes that it’s important to understand how this question is answered differently by different types of companies: where are the most customers, and is it a services company with a few dozen clients or a platform with tens of thousands.
In some cases, the very same startup goes through several different cycles to find product-market fit. Look at ROAR for Good, the much-celebrated wearable safety tech product company cofounded by Yasmine Mustafa and Anthony Gold. Five years ago, they stormed the market with a direct to consumer product targeted at women, and sold plenty locally (my wife bought several for herself and others). But they didn’t see the growth they wanted. So they pursued selling to companies, which could offer them to employees — and their first three customers were local, including Comcast and real estate firm Houwzer, said Mustafa.
More recently, they found a more specific industry segment: hospitality, including hotel workers who are frequently put at risk in close confines and might want a way to quickly alert others. (Read our thorough review on that pivot.) In this latest iteration, both of their first two big clients are in Chicago.
I read that as the healthy, stressful, productive market testing and discovery of a startup, using a local market as a test bed but also having to go out and compete nationally. Still, it can create noise in any assessment of how eager local buyers are to support nearby founders.
For that reason, I spoke to a wide-range of types of companies, from software services firms to SaaS product startups of various size and type, both bootstrapped and venture-backed examples. Many are business-to-business enterprise solutions selling relatively expensive contracts or subscriptions, though payment installment platform company Perpay is an exception, as CEO Chris DiMarco reminds. (I didn’t include companies that, by design, started local only, like delivery service Fishbox.)
At the very heart of local is the idea of trust. Corporate procurement officers and mid-sized company budget owners have a reputation for being skittish about startups: What if this company goes under? they ask themselves. As a company gains more customers, that risk declines. Knowing the purchaser personally is thought to help.
When Marable and I were talking about this, I commiserated that I had a version of his story. We at Technical.ly help clients with talent acquisition-focused employer branding strategies. Our first paying client for our subscription Talent product was local (as was our first ever buyer) but as we’ve stretched outside of tech companies, I have seen the residue of the risk-averse local buyer. In a pair of industry segments I think we should compete in, we landed important clients from other cities before we got a local buyer to bite.
As the reputation of Philadelphia’s technology companies grows locally and beyond, it helps change an old culture. It helps to follow smart sellers who wear Philadelphia as a brand.
Look at Rick Nucci, the long-haired CEO of Guru, a knowledge-management solution with 150 employees that announced a $25 million Series B late last year. His second paying client was local. As for Boomi, the early cloud-based software company he started in 2000 and later sold to Dell in one of the region’s biggest exits, the story was the same. His first local paying customer back then was the second also.