In his 1987 book, Moments of Truth, Jan Carlzon tells the story of howhe reinvigorated his ailing company, the Swedish Air Service (SAS),by focusing his 20,000 employees on the customer experience. Hislogic was straightforward: The airline served 10 million customers ayear. Each customer came into contact with approximately five SASemployees during the year, and each contact lasted an average of 15seconds. He wrote, “The SAS is ‘created’ 50 million times a year, 15seconds at a time. These 50 million ‘moments of truth’ are the mo-ments that ultimately determine whether SAS will succeed or fail asa company.
More than twenty years later, this notion still cuts to the heart ofwhat makes any business viable and enduring. Carlzon was operatinga large service organization, but the idea that businesses are the sumof their customers’ experiences perfectly applies to founders of seed-stage startups, whether they are hawking websites, widgets, or ac-counting services. The global economic crisis of 2008, and the factthat it was caused by bubbles and run-ups largely empty of assumed value, returned us even more squarely back to fundamentals. Under-neath all the noise and clutter that can accompany your startupprocess, it’s helpful to remember a simple truth: If you create enoughvalue for enough paying customers, much of your initial risk meltsaway
When your product or service is ready for prime time, here arefive guidelines for gaining an early edge in the marketplace.
1. Invest to acquire customers
By “invest,” I don’t mean spendwads of cash, unless you’re a well-capitalized founder with aclear-headed plan calling for that. I am suggesting that youput other assets to use, including the most precious resourcesavailable to you: your focus, time, and energy. Are you di-recting these toward generating prospects, converting theminto paying customers, and stoking the sales engine to builda longer-term revenue stream? Or are you hoping that cus-tomers will flock to your better mousetrap simply becauseof its magical, magnetic pull?
I sought much advice when I started out as an independentconsultant. One piece that stuck with me came from a legendin my field, who, in an interview, was asked to name the secretthat distinguishes successful consultants from the rest. Hethought for a moment, then he replied, “clients.” Althoughmost new founders understand the importance of building ahealthy pipeline of clients, they also routinely underestimatewhat’s required to do it, even with a well-targeted offering.
Revenue is a lagging indicator. Your customer count willbe a function of how much time, attention, and, as necessary,money you put into your marketing and sales efforts. Thelook and feel of your particular approach will depend onyour business model and plan, who you are targeting,through what channels, etc., which I’ll discuss in more detailin Chapter Five. Whatever your plan for acquiring cus-tomers, be sure not to take short cuts in this vital area.
2. Go for game-changing partnerships
A common theme amongsuccessful entrepreneurs is that they don’t attempt to do itall themselves. They create early alliances that bring stability,customers, connections, capacity, or promotional support.Whether it’s that first monster client account or a highly traf-ficked website that features your product on its home page,big-ticket partnerships can radically alter the growth trajec-tory of your business. Microsoft was essentially born througha deal to provide the operating system for IBM’s first per-sonal computer. Modality’s first big break came as a result ofMark Williams’s hard-earned partnership with Apple.
As David Thompson notes in his book, Blueprint to a Billion,these alliances are often highly asymmetric, with the larger,more established partner holding all of the power.12Suchpartnerships bring challenges and risks. You can becomeoverly dependent on a single mammoth partner, for example,or lose direct contact with your end user. Making the rightalliances work in your favor will call for boldness, creativity,persistence, and strong relationship skills.
As you look across your market, use these questions asguidelines for identifying and landing game-changing al-liances:
- Who currently has relationships with your targetcustomers
- Who do you currently view as a competitor that, ifapproached differently, could be a useful partner
- What early customers would instantly connect you withother prospective customers or elevate your businessprofile in a positive way
- What can you offer each prospective partner and viceversa? Where are the win-win opportunities linking yourbusiness concept and theirs
- What specific steps can you take to explore andstrengthen the most promising relationships?
3. Understand your user’s experience
There’s nothing like thefeeling of making that first sale and serving that first cus-tomer. Your effort and sacrifice have borne real fruit. So cashthat check, whether for $16 or $16,000, and pop the cham-pagne.
But, after the celebration, remember that early sales don’talways equate to satisfied customers. First-time buyers mayflock to you because of the novelty effect of your new prod-uct (think of how much traffic most restaurants attract intheir first few weeks). Now that real customers are involved,you can begin to answer some vital questions: How effec-tively are you solving your customers’ problems? Are youcreating real value for them? Are they the right customersfor you? If so, will they buy from you again and refer othercustomers to you? Answering questions like these will helpyou build a sustainable market presence over time.
4. Focus and go deep with the right opportunities
The early stagesof a startup are all about opening up, experimenting, and generating possibilities. It’s the time to throw your best stuffout there and see what sticks. But as leads turn into viablemarket opportunities, many startups reach a point where ex-perimentation is no longer necessary or helpful. To propelthe business forward, you must choose, focus, and execute ina few core areas. This often means saying no to some excitingoptions, a fact that can severely test founders accustomed tosaying yes to any potential revenue source. If the yes-habitisn’t broken, you’re likely to stretch yourself too thin and failto make a major impact with any one initiative.
The challenge is in knowing which opportunities to pur-sue more deeply, and which ones to avoid. Here are a fewguiding questions:
How well does the opportunity align with your purpose,your plan, and your passion
How will it impact cash flow? Will it yield an immediatereturn of cash, or will it function as a short-terminvestment with lagging return
What is the degree of difficulty? How well does it matchup with your strengths? 9What will you have to give up to successfully take it on?To what will you say “no” to free up capacity for this“yes”
What are the costs/risks to you if this opportunitydoesn’t work out as planned? Are these acceptable andmanageable?
5. If you face a revenue crisis, treat it like one
Falling short ofearly sales goals is the rule rather than the exception amongstartups. Usually, these initial shortfalls are not as dangerousas another common phenomenon: the unsettling tendency offounding teams to deny that things may not be going well, toavoid talking about it, and to rationalize away the possibleimplications. This well-worn path of denial, most acut among passionate, true believers, often delays or obscurescritical learning, choices, and actions. In the interest of “stay-ing positive,” founding teams allow the enterprise to sinkmore deeply into a hole.
Here are a few guidelines for monitoring and reacting toearly sales news.
- Avoid looking at financial data (this is surprisinglycommon, like leaving personal 401K statementsunopened during a market free-fall).
- Shield key partners, investors, or co-founders fromdisappointing news, as this only ensures they will not beable to help.
- Implement a knee-jerk response without understandingwhat is causing low sales.
- Wait for changes in some external circumstance overwhich you have no control, such as economic recovery.
- Look at sales information frequently and closely.
- Take bad signs seriously, before they grow into crises.
- Discuss any deviations from your game plan openly withkey partners and investors.
- Investigate and analyze until you understand why salesare low (see Appendix B for Eric Ries’s simple butpowerful process for finding and addressing root cause:“The Five Whys”).
- Take appropriate action
When assessing causes, try to distinguish internal process issuesthat can be corrected (such as product errors, communication gaps,or distribution snags) from more fundamental issues that cannot besummarily fixed (such as significant, unanticipated shifts in the maretplace).
The former circumstance calls for quick, focused action, whereas the latter calls for a big picture reevaluation of your overall business model and approach. In some cases, early sales shortfalls area canary in the coal mine, an advance signal that the market for youridea is too weak to support a profitable business. If you can grasp thispossibility early enough, you’ll have a healthy head start on redirect-ing your assets and capabilities to a more welcoming opportunity.