To the struggling startup – which is redundant, as all startups struggle at some point – any customer is a great customer. Any port in a storm, right? After all management guru Peter Drucker said “The purpose of business is to create a customer.”
Customers represent cash – the lifeblood of any business. But beyond that they represent validation and Le mot du jour – traction.
But startups need to learn what a successful, experienced sales person knows: not all customers are created equal. For that reason sales reps qualify prospects, and founders – most not being experienced in sales – must learn to do so as well. Lets define terms for a start. A customer pays for your product. A prospect is a potential customer.
For a startup your prospects should:
- Not demand customization of your product, or you will end up spending time implementing features that aren’t on your roadmap, consuming valuable resources that should be devoted elsewhere
- Have the potential to be repeat customers. There are two types of business relationships: transactional and relational or consultative. Transactional relationships are like those awful restaurants on turnpikes – they don’t care if you are one and done, as the odds are they wouldn’t see you again, even if they did provide better fare. But if you can build a relationship with your customer, then they will want to come back to you to purchase services or in the case of consumables, to purchase your product again and again. Preferably on a regular basis. Recurring revenue is the holy grail for startups. (Which is why the subscription business model is so desirable.)
- Have the potential for up selling. Up selling is when you sell your customer more expensive products and/or products that provide a better gross margin.
- Don’t cause you to lose focus or divert you from your mission. One common problem I see, and I’ve been there, is that startups tend to be opportunistic, not strategic. Meaning they exploit a chance offered by immediate circumstance without reference to their business strategy and plan. Startups need to be strategic. Customers should fit with your long-term plan and company mission.
- Have the potential to act as a reference or provide a testimonial. This is primarily a B2B value. No one likes going first. The typical initial question from the enterprise prospect is “Who else is using your product?” You need customers who are willing to be references for you, to talk with prospects about why they bought your product. Ideally your customers would provide you with testimonials, for use on your web site and or in a press release.
- Offer the opportunity to sell to other divisions or subsidiaries. Again this is an enterprise sale value. With startups you often start with one division or department or even just one team. But your goal should be leveraging that sale to many other sales within the company. Introductions by your customer to other prospects within their company are very valuable.
- Provide valuable feedback on your product. The job of the founder and the venture is to learn. Thus customers who will help you learn by providing feedback on what’s good and not so good about your product, what features they would like to see in new versions (not that they need to see for a sale!) and even feedback about your sales process, are far more valuable than customers who are just interested in a plug and play product and have no feedback for you.
Profile your ideal customer, in writing! And make sure that anyone who is at all involved in your sales process can recite that profile fluently, and more importantly, can say no to prospects who will suck up valuable resources or divert you from your path. Of course, not all customers will have every desirable characteristic, especially if you are in a consumer business where driving necessary volume may make sales more transactional than relational. But a goal of a startup is to measure return on investment, be that time or money. Thus you need to focus on customers who will maximize your return, not simply sign a purchase order. The cost of customer acquisition must be a fraction of customer revenue – that’s your gross margin, which must be healthy.