Archive for July, 2009

How do you find your first buyer?

The first sale first (FSF) sales process is extreme selling.  Just like any extreme sport, the conditions are tough, the risk is higher, and few are willing to try.  As an entrepreneur trying to build your company with customer capital, you will play among the elite.  If you succeed, you will be a star.

Why are the conditions tougher than regular selling?  Three reasons:

  • lack of a reference customer
  • lack of product
  • rarity of customers willing to take risk

Reference Customer – in almost any sales process it is *really* helpful to have a customer who has bought and enjoyed the benefits of your product explain their experience to your prospect. People tend to believe another customer, in a similar situation, far more readily than the salesperson.  Usually the request to talk to a reference customer comes up in the later part of the sales process.

One key to overcoming this problem is to develop an exceptionally deep understanding of the customer’s situation and needs and to propose a solution that is perceived as completely unique.  If the customer feels that no one else has exactly their set of circumstances and that no one other than you understands them quite as well, they will feel confident about their decision, despite the lack of an external reference.

Remember, from the customer’s point of view, they are making a bet on *you* despite the fact that no one else has made the same bet – they will only do this if they feel they have a *very* rare opportunity to win big.  Your job is to make the customer almost taste this big win.

Product?  What product? – Rookie sales people start pitching their product from the get go.  They must hope that the product will sell itself!  Experienced salespeople find out what the customer needs, why they might buy, whether they have money, and how they will decide before they show their product. As a FSF professional, you of course don’t have a “product”.  That’s what makes this an extreme sport.

In many B2B sales, the “product” is only one element of the solution to the customer’s problem.  From the customer point of view, the benefits of buying a product vs. a purely custom solution is that the development and maintenance cost of the product is shared with other customers and the risk of product development is eliminated.  In a FSF situation, you don’t have a product but clearly intend to have one.  You can and should promise the economic benefits to your first customer.  The risk of product development failure remains but if the customer has a problem they cannot tolerate, you can help them put that risk in perspective.  In addition, you can mitigate that risk by committing to additional custom work at rates that are far below industry norms.

While I don’t claim to have hard data to support this, when the price of the product is less than a third of the overall solution, you have a good shot at a successful first sale, before you have a product.  Remember, we want to sell products, customers want to buy solutions.

Risk tolerant customers – are not the norm.  Finding a customer who will buy a solution from a startup company before they have a finished product and reference customers is not easy.  It is decidedly hard work!  You have to talk to a lot of potential customers to find the one that will give you your first sale.  One key to the first sale is to make a *lot* of phone calls.  Persistently.  Week after week, after week.  Hey, if this was easy everyone could do it.  It wouldn’t be an extreme sport then, would it?

To guide your efforts every week, you need a systematic approach and a tool to capture your learning.  I use a document I call the “Ideal Customer Profile”.  This document includes the rank/title, job function, industry of the person who might have the problem you can solve.  It will have a list of symptoms that should exist at their company if they really have the problem, and it should describe the implications of the problem.  These characteristics will be the basis for the questions you will ask as you make your phone calls and try to find that first customer.  As you call, you will learn more about the symptoms, the implications and who has responsibility for solving the problem.  The ideal customer profile should be updated with what you learn each week.

Looking for early adopters is another common approach – the trade press loves to cover such people and highlight their successes.  Scouring the trade press has to be part of your prospecting plan, obviously.  These early adopters are often quite willing to give you advice and direction even if they don’t need what you have to offer.  Their insights can be invaluable, their introductions golden.

Getting your first customer is not easy.  Getting them to give you cash to build your company when you don’t yet have a product is downright hard, but it has been done.  It can be done.  The people who stand the best chance of doing this are people who really passionately believe that they have an inventive solution to offer their customers, who have world-class expertise, a brilliant insight into the customers’ problems and a willingness to persistently search for those that need their help.  Hey!  That’s you – isn’t it?

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July 31, 2009 at 1:07 am Leave a comment

Who do you know? Networks Essential to Entrepreneurial Success.

“Do we know any engineering managers at companies that make trailers to transport horses?” This question came up when I was trying to help a founding team that had invented a tire pressure monitor. In our attempts to identify an initial market, this application – trailers for horses that their owners love (and will spend a lot of money on) – was rising to the top of the list. We imagined that trailer manufacturers would gladly offer this as an option, it would increase gross margin per trailer and would not require any engineering change, only approval. Trailer owners would buy it because the risk of ankle injury while transporting a prize horse would be greatly reduced. We would generate some much needed cash on this small, neglected niche market.
How would we verify if our imagined market was real? By talking to a few potential customers of course. How do we find them? Hence the question.
This scenario is repeated hundreds of times by each startup team, especially in the early days when you are a complete unknown. If you are going after customer capital as your first milestone, then this is even more relevant and urgent. If the founding team does not know someone at a target customer company, perhaps they know someone who does. The more people they know in business, the better their chances of making that connection through a reference, hence the value of networks and “networking”. Of course, there is always “cold calling”.
I’m no expert on networking (see the resources section for a couple of primers) but I have 3 simple pieces of advice to would-be entrepreneurs:
  • Start early, be regular
  • Don’t be shy
  • Be helpful
If you look at advice on personal finances, one thing that you will see invariably is “start early – the power of compound interest is working for you – even if you can only save $100 each month when you have your first job, do it – *every* month”. The same goes for the network of people you know. The longer you have been consciously building your network, the larger it is likely to be. As a young engineer, I was convinced that what I knew was vastly more important than who I knew. Even if I was right, I wonder how much more I could have accomplished if I had seen the value of networks much earlier. Entrepreneur or not, your “rolodex” is a very valuable asset, grow it – deliberately. Start now.
Technical people tend to be shy. I deal with a lot of first time technical entrepreneurs. They tend to be shy too. I can relate to it personally and can tell you a couple of things that have worked for me: a) think if it as testing your ideas, not promoting yourself and b) telling strangers what you have invented or what you are doing gets easier with practice. I have found that people are actually interested in what technical entrepreneurs are doing and where they are going – we are not seen as dorks anymore! To improve your skills at talking about yourself and your startup, join a startup boot camp like the Entrepreneur Boot Camp in Ann Arbor or join a business plan competition like the Great Lakes Entrepreneur’s Quest or look for entrepreneurial networking opportunities like the New Enterprise Forum. Whenever someone asks what you do, tell them – take a couple of minutes to explain; practice; don’t be shy.
Meeting new people and exchanging cards or getting “LinkedIn” is not the end. You’ll want to keep in touch. You want people to remember you and more importantly, you want people to trust you. How do you go from stranger to trusted business contact? One obvious answer is to be helpful. Genuinely seek opportunities to help people you know. With all the social networking tools available today and even with simple unglamorous e-mail, it doesn’t take a lot of time to keep in touch with people, understand what they are doing and try to help them whenever you can, however you can. A simple introduction, a link to a helpful article, an encouraging word when the chips are down all go a long way. It’s not hard, all it takes is a commitment to look for opportunities to help and to do it regularly.
First time, young technical entrepreneurs often have more time than money. Investing your effort in networking is an effective way of turning time into money. Let me know if I can be of help to you.

Resources:
  1. Boston Globe article on Networking for Job Seekers – applies just as well to entrepreneurs.
  2. Barry Zweibel, a business coach’s primer on networking skills.
  3. Entrepreneur Boot Camp in Ann Arbor – 2 day intensive training with pre-and post-camp activities to greatly accelerate the development of your startup. Includes training on elevator pitch and other brief powerful presentations to investors and customers.
  4. Great Lakes Entrepreneur’s Quest – expert coaching on business plan, pitch, a chance to showcase your business in front of national VCs and prize money!
  5. New Enterprise Forum – monthly meetings and veteran coaches who will help you improve your presentation until you are ready to showcase your startup. Annual battle of the pitches – a funny and informative event.

July 31, 2009 at 1:04 am Leave a comment

Should I try to get a customer before an investor?

If focusing on the first sale first is so powerful, should every startup do it? The answer is no. There are types of businesses that cannot use this approach. In addition to the type of business, focusing on your first customer is most effective at certain stages of your development – and its earlier than you think!

The first characteristic to consider is your typical deal size. If the amount of money you can get from one or even a few customers is insignificant compared to your capital needs early on, you probably cannot use this approach. For example if you have a service you plan to sell over the web at a $20/year subscription price and you need $200,000 to get the service up and running, raising money from early customers (customer capital) is probably not going to work for you.

The second question to consider is regulatory requirements for your product. If you are developing a new drug and require FDA approval, it is going to take a long time and a lot of money before you are legally allowed to sell your product to customers. This makes it very hard to fund pharmaceutical startups with customer capital, although it’s been done. Someday I hope to be able to tell the story of how one pharmaceutical company I know did it.

The third question to consider is stage. At what stage of development of your startup should you focus on trying to get a customer to buy your product for cash? My answer is at the very beginning. I’ve seen serial entrepreneurs and first-timers sitting in coffee shops having highly animated discussions — it’s not just the caffeine. The difference? The first-time guys are sitting with their buddies and dreaming big. The serial entrepreneurs are sitting with their customers and figuring out what they will buy and for how much, before they even start building it.

When you are trying to figure out:

  • if your technology works,
  • whether you have identified the correct market segment, and
  • is your value proposition is compelling,

that’s the time you need direct and honest feedback from customers. I know of no better way to get that candid feedback than to ask your potential customer for cash. If you succeed in convincing the customer – great – you have cash to continue development. If you don’t, you learned something that would have taken months to ferret out.

July 31, 2009 at 1:01 am Leave a comment

Why focus on your first sale first?

To have a successful business you will certainly need customers. You may need professional investors. If you do need professional investors, they will want to be convinced that you know what you are doing. Of the many questions they will have, some of the most fundamental are:

  • What problem are you solving for whom?
  • How much does the problem cost them and are they motivated to change?
  • Where are your target customers and how will you reach them?
  • Why will they choose your solution?
  • How much are they willing to pay you for the solution?

Obviously, the best way to convince them that you know your market is to have customers. In fact, if you have a single customer you will know far more than someone who has only read analyst reports, perhaps conducted a survey, and pontificates about his “value proposition”. As a quick aside, in the early stages of building a business all we have is a “value hypothesis” not a “value proposition”. Just using this term reminds us that there are many things that we don’t know. The faster we can test our hypothesis and learn what works the more efficiently we can build our business. The key is to do it fast and on the cheap.

Impressing potential investors is not the only reason to focus on your first sale. In developing your business there is no path that is more capital efficient. Choosing the right set of features for the first commercial version of your product or service, determining who to ally with, learning how to position your offering against your competition, and how much to charge are best done in the context of trying to sell to a real customer. The prospective exchange of cash for promised value focuses the communication on what really matters. You learn more in a 20 minute sales call than you can in a *polite* exploratory interview. This translates into a focus on actions that are responsive to customer concerns and objections and on winning the sale. All the other “stuff” that tends to occupy our attention just goes by the wayside – creating a customer focused, capital efficient and entrepreneurial organization.

Third, if you can fund your development by convincing customers to pay you in advance of your delivering the solution, something I call getting customer capital, you will end up with fewer restrictions on the structure and direction of your company.

In addition to the logical reasons for focusing on the first sale first, I know from personal experience that there is nothing like the rush and boost in confidence that comes from receiving that first check. When that happens, you just *know* you’re on the right track.

July 31, 2009 at 12:59 am Leave a comment

Where do you start?

You have this idea that will change the world! You know that what you have will solve an important problem for many people. You don’t know of anyone else who can do the job as well as you can. You are sure people will pay good money to have the problem solved. Do you have the seed of a successful company?

Maybe. To find out, you need to take action. In fact you will have to do a million things to build a successful company, but where do you start? What should be your first milestone?

For many people like you, the best answer is to focus on getting your first customer – the first major milestone should be the first sale.

July 31, 2009 at 12:56 am Leave a comment


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