In 2022, a tweet where someone asked what the difference between a startup and a business is went viral. Surprisingly, a significant number of founders and the general public, at the time, did not believe that a startup was a business.
In fact, I remember one tweet saying something like “profit is the killer of startups,” and I wonder what that person thinks now.
For those of us that still believe that a startup’s core function — like a business — should be to make money, this article is a step-by-step guide to establishing and growing your business from customer revenue — based on my experiences over the past decade building smallChops.ng, and excerpts from my recently published series called Thriving in Nigeria.
However, before we talk about building, especially when growth depends on customer revenue, we need to talk about value.
My first venture was reselling drinks and snacks overnight in school. Stores closed at 7pm, and students typically read overnight and rarely ever had the time or foresight to stock up before the stores closed. The value was in access; I made a 50% profit providing it.
From that venture, an uncle mentioned how he needed to source special rice for his diabetes, so I started sourcing directly from farmers in eastern Nigeria and retailing in Lagos. The value was in interstate distribution; I made a profit providing it.
I could go on and on across ventures from agriculture to recycling, up until we get to smallChops.ng, where the value proposition that we launched with was allowing people to order a single pack of small chops. The value was in piecemeal, and we made a 20% profit providing it.
The point is, until you identify where the value lies for your customer, there is no revenue for you beyond what your charm and the strength of your network can generate. So if you haven’t figured out where that value lies from your customer’s perspective, stop here and figure it out.
If you have, let’s begin.
First off, a reality check.
To build with customer revenue, you need to treat your customers like investors. Like in fundraising, finding the right investor takes a lot of intentionality; both parties need to ‘click’. The same applies to customers. You have to be very intentional and specific with who your customers are from day one.
You have no business targeting the “200+ million people” on everyone’s decks. Even my estimate of an actual addressable market of 11 million people for online products in Nigeria is way too large if you do not have venture capital. VC allows you to spray and pray your product sticks with at least some users, but customer-funded growth requires that you start with the specific people that you’re sure you’re solving an actual problem for, even if there are just 100.
A good way to test this is how willing the customers are to pay for the product or service before it even launches. This is exactly what I did.
At first, smallChops.ng was just a response to a guy — me — having a craving, but I knew that I couldn’t build a business off of my appetite alone, so I started to find a market. I didn’t have capital, so I went from class groups to church to BBM to social media, asking the same question over and over again, “Have you ever wanted small chops but couldn’t order because you had to order a lot?” I got about a hundred yeses.
We didn’t stop there; we then asked if they would be willing to pay a day in advance to get those small chops. Three people said yes at first, then they told their friends, and in less than three months, I was making enough revenue to pay a customer service rep full time. We had fewer than 50 paying customers after four months; today, we have over 15,000.
Now you’ve confirmed you are creating value, and you’re realistic about your target market, the next thing you need to do is set up a process that can consistently and reliably deliver the value that your customers need. However, before we discuss the process, there’s one key thing that you need to consider — the value you have chosen to provide has to be based on a need, and not a trend. There’s no point building a startup or business around short-term popularity.
Cool? Let’s talk process.
In the first part of the Thriving in Nigeria series, I explained how every business is a process, and every process has to have an input and a working system that converts that input to the desired output.
In most businesses, the input consists of two parts: the money your customer pays you and the resources your process needs to convert that money to customer value. When the system cannot convert that input into value and still has enough left over to invest in growth, there’s a problem.
After years of consulting with multiple startups, I’ve developed what I call the 7-yes framework, which is basically a set of yes/no questions that allows founders and business owners to evaluate how efficient their processes are. You can download Thriving in Nigeria Part One and take the 7-yes test in Chapter 3 here.
For every “No” you get, it shows you exactly what the problem with your process is and how to solve it. The key thing is to work towards 7 yeses, even if you start with just 1. However, if your business does not score up to 4 yeses on the 7-yes test, return to the drawing board and come back when it does. If it does, congratulations, we can now move to the next step — contributing a portion of revenue specifically to growth.
When smallChops.ng launched in 2016, we didn’t have a lot of capital. Most of our cash went towards technology and branding, and not a lot went into growth. However, we made sure that after covering all monthly expenses, at least 50% of whatever was left over went towards growth-related activities. Everything from increasing our ad budget to sponsoring freebies, discounts and updating our product based on feedback from our customers was primarily funded by this contribution.
Before long, we had a sizeable marketing budget monthly and could afford to consistently offer extra value to our users and even our team members, without needing extra outside capital.
Now, with growth comes the appeal of complexity and customisation; you need to ignore it and stay cheap for as long as possible.
If something is free but is working with your process seamlessly, you do not need to opt for the flashier, more expensive version because you can now afford it, or the founder has sold you over tacos and shots. If it’s not holding you back, you don’t need to change or upgrade it — put that cash towards growth.
Even with the trickle of capital that comes from your customers, you can get really creative with your marketing efforts. It doesn’t always have to be Google or Meta ads, explore micro-influencers, pop-ups, location activations, or even t-shirts on street hawkers. Many of these are not as expensive as you think, and many providers offer pay-as-you-go services according to your budget.
The only substitutes for capital are time, resilience, and creativity. You can’t lack both capital and those three; you’ll just be setting yourself up for premium tears.
Here’s the thing: building with customer funds is nowhere as flashy or glamorous as building with VC funds. You have limited cash to experiment; most of the upfront work is demeaning, stressful and embarrassing, and you don’t have the luxury of throwing money at problems.
What you get is a deep understanding of your customer base and your market, a product or service that is solving an actual problem, and a brand that is rooted in the needs of your users. You also get a solid cash flow business that you can plan or predict with, and eventually make a comfortable-ish living from, raising capital then becomes a question of how far you’re willing to go rather than how long you have to live.
Building based on needs also means you will always have revenue. During the COVID-19 lockdown, smallChops.ng never shut down. Rather, we recorded incredible sales as more people realised how reliable our operations had become in solving that specific need. Today, we’re launching a sister product, bokimart.com, to keep providing even more value to our users.
In conclusion, the customer-funded philosophy to building a successful startup can be summarised into the following key strategies: create value, know who will pay for it intimately, design an efficient process, ensure that a part of what is left after profits is deployed for growth, and be capital efficient and creative with your growth strategies.
In my Thriving In Nigeria series, I break down these strategies across three parts, with the last part, The Way of the Underdog, describing this philosophy of building with customer-funded revenue in a little more detail than 1500 words can allow.
Till next time.
Stay building.
Uche Ukonu is a software engineer turned startup founder. In 2016, he launched smallChops.ng and has since bootstrapped it to profitability.
