Do’s & Don’ts for “Acquire Your Customers”
Entrepreneurs sometimes think that a price list is the same as a business model or that their go-to-market strategy is unrelated to the business model. Instead, the business model is your first opportunity to bring together the diverse aspects of your value proposition into an integrated whole. Your process for acquiring customers needs to include:
- Your specific products or licensing opportunities based on your innovation;
- Your prioritized customers and market segments and partners; and possibly
- Your own take on the go-to-market strategies validated by your competitors.
Integration of this diverse information into a holistic system can be frustrating as it is likely to reveal that that some of your assumptions, e.g., about market size or time to product launch, may contradict each other, for instance.
But that’s a good thing!
Far better that you identify and resolve these inconsistencies before you quantify them in “Know Your Numbers” or show how the timing and investment come together in “Plan for Success” and “Make Your Ask“.
As with many aspects of your value proposition, your business model must balance between revealing an exciting opportunity and your ability to execute effectively. The temptation to do everything right away or to focus exclusively on making a perfect first product can be very strong.
- If you try to be all things to all people, you will more than likely be nothing to nobody. An early stage company simply does not have the resources to pursue multiple target markets or different products or, worse, both at once.
- If you try to make the perfect product in your first iteration, you run the very real risks of (1) being wrong and (2) being passed by your competitors. Your customers will tell you what benefits are crucial to get right, and which can wait for refinement.
Your business model represents a complex ecosystem of suppliers, customers, end users, influencers, and channel partners. Each interacts with the others, directly or indirectly. Understanding their interdependence and how you can help each avoid risk will help you grow your business more efficiently.
Because of the complexity of getting everything right (or close enough to right) to generate revenue and profits, I encourage early stage startups to focus on a single product instead of a range of them. Often, they will tell me, “We have just one product, we’re just selling it into different markets.”
I’m sorry to tell you that selling an identical product to two different markets still counts as two products.
- Your sales team needs to know how to sell it to customers who use it for different purposes. That means different collateral, different networks, different channels, and/or different closing techniques.
- Your production and support teams need to address different priorities, different uses, and/or different features or benefits. They need to develop expertise in two different markets to address service issues.
Every time someone on your team is focused on one type of customer, they cannot spend it on the other. If you are at an early stage or underfunded, recognize that you are asking your team to divide their available time and resources when they already don’t have enough.
If your product is software or a service (or both), then you are relatively safe from supplier risk. Any day there is no electricity or server farm available is a day that we have bigger problems than delivering software.
However, you do need to be careful that your chosen server provider complies with privacy requirements in all the countries you plan to serve, has a reputation for reliability, and is cost competitive. Vet several candidates and maintain a prioritized list.
If your product(s) is tangible and needs to be manufactured or at least assembled, you have several other risks to address:
- In-house manufacture. Keeping your process in-house allows you to keep tight control of your intellectual property and may inspire new IP and trade secrets as you learn and optimize your processes. You can also keep a close eye on quality control and have maximum control over delivery schedules. However, as a relatively small player, you will have minimal leverage in negotiating prices and access to limited feedstocks.
- Out-sourced manufacture. Subcontracting manufacture takes a lot of stress off your young organization, usually results in lower cost and increases your ability to scale up or down rapidly. Contractors are usually able to negotiate better prices and priority in gaining access to parts and feedstocks than small organizations. However, you will have to rely on their word that they will not reveal proprietary information. Their priorities will not be yours in terms of clients, customers, quality, and delivery schedules. Managing this relationship actively is absolutely crucial to ensure timely delivery of product at an acceptable quality and price.
- Limited feedstocks. If your products require a rare or expensive feedstock, be sure to compile a prioritized list of alternatives. I had a client that required a chemical that was available only from one specific type of tree that grew in just one region of the world. To reduce risk, they bought a plantation… only to have it devastated by a cyclone. They were able to recover, but had they not owned the plantation, it could have been years before they accessed adequate quantities to produce their products.
- Mixture. Most companies outsource some manufacturing and/or buy OTS (Off The Shelf) components and then do some level of assembly in-house. Exactly which activities are handled by external entities is a strategic decision on your part.
Bear in mind that someone needs to have responsibility for the entire production process, start to finish, in order to identify problems or delays as early as possible.
Decision-Making Customers and Partners
Customers – the decision-makers who pay for your products – are your most important investors. They are trading their hard-earned cash for the direct value they perceive in your products. Without them, your organization will ultimately fail, no matter how much venture capital or grant funds you are able to raise. Customers are often reluctant to buy from young companies due to the lack of a track record and high risk of failure. This perspective gives your more established competitors a significant advantage that you can overcome through better products… and better service.
You may engage your customers as partners in finalizing a prototype or running a pilot project, with the goal of converting them to customers at the conclusion of the program. This approach is common for early stage and/or costly products when you are working to establish a reputation for performance. Successful partnerships can transform your startup in a fraction of the time it might take otherwise. In fact, I encourage you to approach every major customer relationship as a partnership; your goal should always be to help your customers succeed, not just be a source of revenue.
Partnerships, especially with large, well-established companies, need to be managed actively. I have far too often seen early stage companies paired with major corporations via an incubator or business competition, only to see early enthusiasm slowly evaporate into failure. The timeframes, budgets, and resources available to major corporations versus startups are so different that it is very, very difficult to coordinate. And since the startup tends to need the corporate partner much more than the reverse, it falls to the startup team to stay relevant.
- Engage leadership. At least one person at your partner company needs to be excited about what your technology means to their business. This person is essential to make budget, people, and resources available.
- Engage technical people. If you have solved a problem that the existing technical team has tried and failed to solve, you can expect them to be very resistant to being shown up by a young company. Approach them as creative people who can help the program to succeed rather than as old-fashioned people who missed the boat.
- Engage sales and marketing people. Your technology will go nowhere unless the people who need to use it know that it’s available and can see how to integrate it quickly into the way they do business today. This need exists whether they are selling it to their customers outside the company or simply convincing internal production staff to implement it to reduce overhead.
- Network. One constant in every multinational corporation is that managers are frequently transferred from one leadership position to another. You may start your project with an evangelist securely in place, an appropriate budget, and a timeline that works for you. Two weeks or months later, that person may be transferred. You will likely find that their replacement wants to make a name for themselves with new projects, and your program has been delayed or cancelled. Do not wait for this transition! Set up regular meetings at the corporation to keep people apprised of your progress and to expand your internal network so that you know how to keep your project going.
- Manage budget. A huge source of frustration for many startups is that your partner is unlikely to have the same level of urgency as you do. The budget promised “next week” may take months to show. Promised access to a production line may evaporate due to a shift in their marketplace. Get a signed agreement to a milestone-based project, with each milestone requiring a payment. Then deliver.
- Communicate. More likely than not, some of your timelines will slip as Murphy’s Law interrupts. The temptation to avoid communicating delays “just until we make progress” will be very strong. Unfortunately, one week often stretches to two, then six, then a quarter has gone by. Everyone has forgotten about you and your technology. Your budget and your network are both gone. Instead of risking losing this relationship, set up brainstorming sessions to address issues and generate new solutions, or just keep everyone informed.
End users, the people who actually use your innovation to do something better, faster, and cheaper than they could do it before you, should be your motivating force: they are the reason you designed your solution, to help them solve problems.
Decision-makers and end users are sometimes the same person, but more often (especially in B2B situations) they are separate, with different motivations for wanting your product. For instance, if you are selling a new type of surgical instrument, the end user is the surgeon. They may want this instrument to make a procedure less physically demanding, or faster, or safer, or some combination. However, the decision-maker (at least in the US) is almost certainly the hospital’s purchasing agent, who has different motivations:
- Safer? OK, but it is enough safer that we significantly lower the chances of being sued? If yes, great! If not…
- Less physically demanding? Maybe relevant, maybe not important.
- Faster? Depends. Do we have patients lined up for months to get this procedure, or will doing the surgery twice as fast mean that our operating theaters will be unused for an hour a day, costing us money?
Be sure that you are clear on who your end users, influencers, and decision-makers are. Know the Fear and Greed for each, and make sure you have a cohesive and compelling story to tell so that each stakeholder understands why it is to their advantage to buy your product.
Of course, the fact remains that sometimes there will be losers: perhaps you have an app that provides hotel guests with the ability to book meals at the best local restaurants without going through the concierge, thereby both decreasing the importance of their role and reducing the kickbacks they might be accustomed to receiving from their preferred restaurants. The concierge is therefore unlikely to be excited about your app being implemented and may well find ways to sabotage its use, or even try to keep you from interacting with the decision-makers. If there is no way to provide an advantage for a key stakeholder, you should at least be aware of the conflict and redouble your efforts to increase the value for other stakeholders.
I always ask my clients how they will take their products to market. Far too often, they say, “We’ll launch a social media campaign!” or “We’ll go to trade shows!” or worse, “We’ll launch a social media campaign, go to trade shows, give talks at conferences, and make direct sales!”
If you are working to get your first product to market, you will likely also need to invest time and effort into direct sales, literally knocking on doors or leveraging your network in order to speak directly to potential customers. This process is essential to your long-term success as it provides insights into what you customers want and need as well as how they make and execute their buying decisions.
Your team has limited resources. Seeking out every potential customer and selling to them one-on-one is not scalable. But you also cannot afford to throw those resources at every possible marketing strategy and wait to see which one works. Having an enormous market is exciting, but if it is highly fragmented, getting attention of a significant fraction of your potential customers will be extremely challenging. Claiming you will produce a “viral social media campaign” will just make you look naïve: If you can routinely produce a viral campaign, please quit whatever other work you are doing and start a marketing agency making viral videos. When you are a billionaire, invest your money into the startup you are currently trying to launch.
Instead of wasting time and energy on a one-in-a-million shot at impactful virality, focus instead on how you will reach a highly motivated subset of potential customers. Are you making a healthy new soft drink for all consumers? Great! Who is most likely to buy it? Teenagers? Mothers? Athletes? Someone else? Let’s say it’s mothers, are their children babies, toddlers, teens, college students, or full grown? Let’s say it’s mothers with children in high school. How can you reach them? Are there social media groups focused on fast, healthy food for busy mothers? Are you accidentally neglecting fathers with this focus? How can your healthy soft drinks stand out among the zillions of other options these parents have?
You may find it useful to create customer archetypes, i.e., those people with similar behaviors and demographics that you expect to be responsive to a particular marketing approach. And then adjust that approach when you discover that your archetype was not quite right.
Clearly, the amount of work that must go into establishing and maintaining a go-to-market strategy is significant. Having a channel partner can allow you to piggyback on existing access to a significant market segment, whether as “Intel Inside” or as part of your partners’ range of products. You still need to convince that partner that you deserve to be part of their product offering, but once you do, you will have access to many more customers and potentially have erected a barrier to entry for your competitors.
Congratulations! You have done a thoughtful job of integrating the many components of your business model and mitigated the risk associated with each. Managing the associated processes is the heart of your business, so the work you put in to define them will bear fruit for years to come.
- For scaling in terms of units:
- market segments – consider your beachhead market, then the sequence of segments you plan to enter.
- timing – for each segment, consider the timeframe for entering each.
- channels – identify the channels and partners that will enable you to enter each segment efficiently
- For scaling in terms of profits: Think in terms of pricing, gross margin, and your costs. For more details, see course 09, “Know Your Numbers (Q07)”.