Recently one of my mentees thought they had lined up the perfect customer. I told them that my only concern with the deal was that it seemed too good to be true. My father warned me about things that appeared on first look to be just right for me but upon deeper examination or just the passage of time were not as good as they appeared. This has proven correct, especially in my experience with sales and business development. So if your deal seems too good to be true it probably isn’t.
I’ve found the following signals to be red flags when trying to close a sale or strategic alliance as a founder of a newly hatched startup working with large established companies.
Your prospect has just joined the company
I’ve found that new hires in large companies tend to be very risk averse. They fear doing a deal with a startup could blow up in their faces, getting them off to a rocky start in their new job or even getting them fired. They also don’t know the internal politics of their new company and may attempt to do a deal with you only to be shot down. Finally they may not have the authority they thought they have to sign off on a deal. These same issues can also be true of new transfers. While they may know the company they may not know the division or subsidiary they just joined.
There’s been a recent reorg or acquisition
Be careful if your prospective customer or partner has landed in their current position from a reorg or their company has been recently acquired. Even if they aren’t worried about taking a misstep in their new position, sign-off authority on purchases or business partners may have gotten changed due to the reorg.
The company has no experience working with startups
There’s a real risk that your deal will fall apart if you are working with a company that has never purchased from a startup or partnered with a startup. Your prospective customer or partner may mean well but other people in the decision process – most likely the CFO or CIO – can hold up the deal or kill it outright.
You are perceived as a competitor by an internal group
IT groups tend to be able to say no, but can’t say yes. I’ve had deals go south when the IT group is brought in last to vet the technology and they say no to the deal, clearly because they view my startup as a threat to them. They will often either denigrate the technology or claim they could build something better themselves, and of course, in far less time! So if you are selling technology make sure the inside tech departments are brought in early and you are prepared to prove to them that you will work with them and aren’t trying to compete with them. This threat perception can also hold true for BigCo’s marketing departments, especially if they are new to using technology to improve their marketing reach and effectiveness.
Your prospect hasn’t gotten buy-in from senior management
Depending on the size of the deal CFOs, COOs, CIOs, and even the CEO may end up killing your deal. Don’t invest a lot of effort in a sale or partnership if there is any chance someone from the C-suite can kill your deal at the last minute. Find out if they have to vet any deal from the get-go.
The asset that is least available in startups is time. You can not afford to waste your precious time on a deal that will not get consummated due to one of the above problems. Your ideal customer has actually tried to solve the problem your product solves and failed. They have then made the make or buy decision: they need to buy! Then your job is simply to convince them to buy from you and not a competitor.
If you plan to be a B2B company these are just some of things to be aware of before you expend lots of time and energy trying to close a deal. There’s one more BigCo issue that can bite a startup after the close the deal: large companies can take forever and a day to pay their bills. Cash flow isn’t a big problem with big companies and their CFOs love to stretch out payments to their vendors to 60 or 90 days, or even longer. But cash is king in startups, so try to negotiate a payment schedule that works with your cash flow.
One key responsibility with both sales and partnering efforts is qualifying the customer. That means flushing out red flags before you start investing time in selling the customer.
Your company should have a set of qualifying questions, such as Have you ever partnered with a startup before? That need to answered early in the sales or bus dev process. In virtually every sale their are business decision makers (like the department head), economic decisions makers (like the CFO), end users, and influencers. Make sure you learn who’s who!
Finally I’ve found the bigger the company the more staff they bring to the first meeting. Don’t take this meeting alone! And don’t let the attendees get away with just introducing themselves by name and title. Find out what their responsibilities are and where in sales process, if anywhere, they will be involved. Most people like talking about themselves so it shouldn’t be hard to find out who’s a player and who’s just a looky-loo.
And remember, as my dad said, If it seems to good to be true it probably isn’t.