April Event Review: “Landing The First Customer And Beyond: Reflections And Recommendations”
By Geoff Anderson
April 2016 Event
Moderator: Alex Cowan: Entrepreneur, Consultant, Adjunct Professor, Darden School of Business
Ciara Peter: Head of Product, BetterWorks
Debashish Sinha: CEO, Zen Nut
Laura Klein: Entrepreneur and author of UX for Lean Startups and Build Better Products
Muffi Ghadiali: Product Management, ChargePoint Inc.
The topic of discussion was the acquisition of the first customer at a startup. The moderator and panelists each had a unique and interesting story to tell.
Alex Cowan’s tale was about the beginning of Leonid Systems (purchased by Broadcom in 2015). The original product was a set of tools for provisioning communications within an enterprise context. Little more than a set of scripts that a very sophisticated system administrator would be able to use for provisioning things like VoIP endpoints, it was built quickly for a single customer. As time went on, it was expanded and enhanced, ultimately turning it into a portal for a sophisticated provisioning system that was broadly approachable. The initial customer, though, came via a consulting engagement, and became a business.
His advice was to know the audience (or the target market), and be realistic about whether that initial customer reflects your market, with the realization that it might be OK if it isn’t a perfect representation of the target segment.
Zen Nut’s initial vision was that the “Buyer” would be HR (Human Resources) managers, but discussions with them lead to the discovery that they viewed fitness programs as a checkbox item in their health insurance offerings. The HR department was satisfied with the included wellness programs offered in conjunction with their health insurance.
Deeper investigation uncovered that often the leader within an organization who would champion the purchase was from a group outside HR, who was a fitness buff, and that they were likely members of a cycling or running club – hinting at a method to acquire leads.
Debashish mentioned that early on, they approached the large insurers (Aetna, UHC, etc.) with their pitch, and while they liked the concept, they wanted it to pivot to merely help monitor and control major diseases (read: cost drivers) like COPD, CAD, and diabetes. Working with the major insurers could have led to a great deal of revenue, but it didn’t align with the founder’s vision and goals, so the company declined that overture and stuck to their original plan.
Ciara Peter’s story is more of a traditional B2B enterprise solution play. BetterWorks is a goal setting solution for enterprises during the performance review process. The model is OKR or Objectives and Key Results (analogous to goals/milestones). Ciara joined on the day they had received $50M in Series A funding, and the immediate goal was to land the first customer.
The target companies were large enterprises, and often they were leveraging ad hoc tools (PowerPoint, and Excel were the primary tools in use). BetterWorks was lucky, as their first customer contacted them, a large insurance company, who had a definite need for their solution. Using this first customer as a reference helped them acquire 10 customers after 6 months. However, one of the lessons Ciara shared was to be fluid, and realize that your first customer may not be a perfect alignment. In this case, the customer wanted very specific enhancements and alterations to the product for their limited use case, something that wasn’t aligned with the original mission, nor needed by follow on customers.
One point Ciara brought up was that early on, they didn’t want to alienate potential clients who hadn’t adopted the OKR (Objectives, Key Results) model, so they made the product flexible enough to allow the use of the more traditional “Goal, Milestone” terminology. However, this lead to confusion in the users, and was ultimately removed.
As is common in enterprise IT solutions, there is often the expectation by the customers that the product be customized to their needs, thereby diluting the vision of the original product. Ciara shared that one powerful way to avoid this is to have in every pitch and every sales presentation a clear statement of the core pillars (in this case the science of goal management), and being consistent in this messaging, making it much more likely that you do not end up with open ended custom modifications for each customer.
They did ramp to 100 customers by the end of the first year, a strong launch of a B2B Enterprise package.
Laura Klein had a different story. She shared how she started and built her consultancy, and evolved it to where it is today. Having been a UX and design consultant since 1995 (the very early days of the commercial web), she had ample experience and work. She also had the fortune of working with Eric Ries (author “The Lean Startup”) at IMVU, so she was steeped in the genesis of the concept of Lean Startup. Her blog, Usersknow, began as a series of articles on design and UX, and ultimately became the source for her book, UX for Lean Startups.
While she enjoyed working as a consultant for larger firms, she wanted to hang out a shingle and go it alone. Her “launch party” was at a panel discussion at a conference hosted by Eric Ries, and as part of her discussion, she announced her new business. It was successful, as when she walked off the stage, she landed her first client, a referral from Eric Ries. Since then, she has moved more into mentoring, coaching, and helping startups hire designers, rather than doing the design work herself.
Her advice was to be constantly building your audience, even before you have anything to sell. In her case, this was bootstrapped with content, keeping the inquiries coming. That said, just lead-farming, at least for a consultancy, isn’t as important as lead quality. It is better to have an audience of 100 that really is aligned with your offering, than an audience of 1,000 that is a poor fit.
Muffi Ghadiala’s story was the inception of the Ouya game console. In 2012, the video game consoles were pretty much a three-platform race (Sony, Microsoft, and Nintendo), where the platforms were closed, games were expensive, and there was no or little ability for the technically savvy gamers to tinker. The concept of Ouya was to provide a simple console to plug into a TV, and offer an open, hacker friendly platform. As the smartphone and tablet gaming was beginning to really take off, the success of Apple and Android devices had shown that the keys to success would be:
- A solid platform that is open and accessible
- A game store that is simple to navigate, free to try before you buy, and friendly to both users and developers
- A development environment that is low (or no) cost to acquire, well supported and not too complex to learn
Add to this a pricing model similar to the App store, and the premise was that the system would be a success.
After cobbling a rough prototype together using an Android development kit, Muffi created a video demonstration that both excited his business partner, and was the centerpiece for their Kickstarter campaign. In this case, the hardware was fairly easy (there was much experience with Android and SoC solutions), but quickly building the ecosystem (developers, and the store) would be the challenge.
All good in theory, but how to get an accurate sizing of the market? Knowing that to be successful, they needed a large cohort, they resorted to Kickstarter, posted the video of the prototype, and had a modest goal, to raise $990K to fund the development and productization. The campaign yielded $1M in the first 8 hours, and topped $2M within 24 hours. Muffi knew they had a large enough of a market for success, and they quickly went to work to fulfill the demand.
The Kickstarter contributors were also polled at key points in the development to help guide the product realization. The utilization of Kickstarter was a valuable market research effort.
Questions posed by the moderator:
How much product to build up front?
The answers from the panel were pretty consistent, that you often don’t need a product, or not much more than a mockup and some very rough underlying architecture. It is best to not do too much up-front work and coding. Often at very early stage there is a desire to “go big” but that can hurt your flexibility to adapt.
Using a billiards analogy, where you plan where to leave the cue ball to setup the next shot, how important is the first customer in setting up follow on customers?
Muffi’s experience was that the initial cohort, hard core gamers who were interesting in rooting/hacking, and sideloading on their game needed a message that conveyed that philosophy. Yet, when it was time to look further, to sell to the larger cohort that didn’t value those attributes, the underlying architecture was the same, but the messaging and positioning of the product was far more important.
Ciara’s contribution was that the first enterprise customer is important, but realize that they might not be the ideal prospect, so don’t confuse their needs with the underlying market segment. If necessary, be willing to part ways with them at renewal time if their goals don’t align with yours.
Would you say “No” to a customer if they weren’t a good fit?
Debashish mentioned that this is difficult to do, especially as you are looking to land that first customer, but in his case, when talking with the health insurers, it was clear that their needs (tracking the progress of high cost diseases) didn’t align with the founder’s goal of providing a general fitness tracking and goal setting solution, so “No” was the right answer.
Ciara mentioned that they say “No” a lot, but that it is important to express it correctly, not as an outright rejection, but to circle around to their core pillars, and explain why their solution wasn’t right for the client.
Laura suggested simply to do what you do, and don’t bend over backwards!
Geoff Anderson has been in product management and product marketing for nearly 20 years in industries ranging from semiconductor capital equipment, to networking hardware, enterprise software, and industrial measurement equipment. He is currently available for product management and marketing consulting. firstname.lastname@example.org