Posts filed under 'Early Customer Stage'
November 12th, 2008
Steve Bengston is the Managing Director of Emerging Company Services (ECS) at PricewaterhouseCoopers, a frequent explainer of the PWC MoneyTree report, and the host of “PricewaterhouseCoopers Start Up Show.” He is also a nice guy who is knowledgeable and very approachable. He was interviewed by Anthony Nassar in April 2004 and had some good advice for entrepreneurs on negotiating a reference at the same time they are negotiating the rest of the contract.
I advise entrepreneurs to secure a referenceability clause when entering into beta agreements with customers, and perhaps refrain from entering into a beta agreement if the customer is unwilling to serve as a repeat reference with investors or prospects.
I have had three conversations in the last two weeks about the fact that there are many levels of reference, so I have put the following list together to document my perspective. It starts with an agreement with an individual (potentially at a company that refuses to allow any mention of their use of your product) and work up to a full endorsement with a logo.
- Basic: Your customer agrees to take calls from new prospects. We normally specify a maximum rate (e.g. one a month, three per quarter) as this forces us to prioritize and not waste folks’ time on low probability events. You may mention their name, title, and company verbally and share contact info verbally or in an e-mail to a serious prospect.
- NDA only: You can use name, title, and company on a slide that’s part of a presentation that’s delivered under non-disclosure.
- LinkedIn: for service firms you can ask for a reference on LinkedIn.
- Web Release: You can use name, title, and company on your website with a testimonial statement.
- Press Release: You can issue a press release with an agreed upon quote or set of quotes.
- Other (Public) Document: e.g. a case study, white paper, joint paper for a technical conference. Consider other ways that a happy customer can support you and help to evangelize your shared success. These documents normally sidestep an highly territorial PR or corporate identity or branding group who will pay more attention to what’s being messaged directly to media and analysts.
- Joint Press Release: You and the customer issue a joint press release. This is a very big deal with a public company and can be difficult for an early stage firm to secure. We have helped clients do this but you need to start this negotiation as a part of the purchase as Steve Bengston advises above and be prepared to make concessions on price and other terms.
- Logo: Using a customer’s corporate logo is normally involves more effort than securing an endorsement or testimonial from an individual employee. It carries with it a stronger level of endorsement. It may be NDA only, or agreed to on a case by case basis for a particular web page or collateral piece. This is a very strong endorsement that we don’t normally try and negotiate as part of an initial purchase, although it’s very appropriate for other kinds of joint ventures and partnering activities.
You should start discussing the form of a reference as soon as it becomes likely that you are involved in a serious evaluation. One way to approach this issue indirectly is to ask how they supported or acted as a reference for other suppliers/partners. With a large company you may want to pursue a two track negotiation model where you at least secure a private agreement from your direct customer to act as a reference and answer some number of calls and e-mails. Normally your customers will want you to be successful: they don’t want to pay for all of your development efforts but see them spread across other customers. If your prospect has never acted as a reference for a vendor/supplier/partner at least at a phone call or e-mail level or is unwilling to do so it may be wise to invest effort elsewhere: if you can’t substantiate your success it gets hard to talk about it.
We never ask for a positive reference as a part of a negotiation, only an accurate one: the prospect will more readily agree to tell the truth than shill for you and it’s up to you to convince them with your performance and results that your product is worth bragging about to strangers.
After the fact we try and encourage the customer to be as positive as they feel, but in their own words. We do this by interviewing them and ask them for their perspective on a client’s performance and results delivered. This can sometimes be negative, in which case the issues have to be addressed directly and forthrightly to the customer’s satisfaction. There can be a temptation to “put words in the customer’s mouth” whereby they regurgitate your preconceived advantages. We have come into the middle of several situations where this didn’t end well: when the customer was called by a prospect they offered their real perspective, not the press release phrasing. This created a serious perception mismatch that stalled or killed the sale.
November 9th, 2008
Some thoughts on aspiring to “overnight success.”
- If you define success as making a lot of money quickly you should go into sales and cut out the middleman.
- You can buy one lottery ticket and make a lot of money. You can buy many lottery tickets every day of your life and never recover the cost of your lottery tickets.
- Most of the time the opportunity for “overnight success” is sold by folks who are interested in making a profit on your dreams without actually fulfilling them.
- Of all the sources of funds for an early stage venture, revenue is the most compelling demonstration of traction. Too many entrepreneurs view fund raising as an accomplishment in and of itself.
I think a lot of the desire for overnight success (beyond the lure of easy money, which has a very strong appeal) is driven by trade press accounts of young millionaires who clean up the real story to make it seem simple and inevitable. I have met a number of entrepreneurs who think that one deal or one relationship will be the point of departure for a rocket trip to the stars. That’s always the way the success narrative is cleaned up and presented, but the reality almost always–barring a few lottery ticket winners–involved a lot more hard work and the slow accumulation of many small insights, decisions, and advantages.
I think it’s unfortunate but a lot of what’s written about Silicon Valley entrepreneurship is actually part of a sales pitch or positioning for the venture ecosystem. There is a lot of advice that’s designed to encourage the entrepreneur to start negotiations with an attorney or a VC in a very poor position. The Venture Hacks blog is a notable counter example: their posts on term sheet negotiations are delightfully practical and lately they have provided some excellent advice on bootstrapping and customer development. But many articles and blog posts are designed to convince an entrepreneur to seek early validation from a VC firm instead of a customer, or lately to take a worse deal because “Good Times RIP” (or maybe not.)
Not everything is sanitized hagiography of the founders (or current management) and there are some good entrepreneurial methodologies documented in books like “You Need to Be a Little Crazy” and “Four Steps to the Epiphany” (see the list of books in “Crucial Marketing Concepts” for example). But any of these books are ultimately as useful as reading a math textbook or a book of chess proverbs, or memorizing a set of Go joseki. It’s always valuable to understand the principles, and certainly for challenges in an idealized problem domain like Math or Go you can learn a lot from a formula or a proverb.
But many insights in life cannot be reduced to writing, especially those involving either self-mastery or other people (and startups, alas, involve both). Reading the history of an event does not compare with living through it. You cannot learn to ride a book from a book (or a workshop). Patient experimentation, deliberate practice, and not only rehearsal and pre-mortem but also after action and decision record reviews are all needed.
The challenge with a startup–like many other things in life–is that you need to integrate many different inputs, your own hopes and fears among them, and negotiate a working consensus with your co-founders to be successful.
And that doesn’t happen overnight.
Update: Eric Ries posted a good description of the Customer Development Model yesterday that I didn’t read until after I had posted this. It’s a good overview of some of the key points from Steve Blank’s Four Steps to the Epiphany.
November 8th, 2008
The closing slide in our Idea to Revenue Workshop says
In The Beginning…
The Founders Are The Business.
To Keep The Business Viable,
Learn Faster Than the Competition.
Successful Entrepreneurship
Is a Self-Improvement Project.
When it’s your idea you have to act as if you believe in it and avoid continually seeking validation. Instead ask for criticism and suggestions for how to make it more useful, more valuable, less painful or cumbersome. The hallmark of a serious commitment to a product or service is an active and ongoing search for ways that it could be improved to create more value for a prospect or an existing customer.
As founders you normally select the features and then personally develop the first product. In addition–in early days in particular–you may need to wrap your product in a thick protective coating of personal service to prevent your customers from cutting themselves on “the rough edges of tomorrow” (believe me they can leave some jagged cuts as well as a few dents in a customer’s career).
Either of these situations, whether it’s hearing that your baby is ugly or that you performed unsatisfactorily, can make it difficult to appreciate criticism and ask for more detail. If you can, mentally “stand next to yourself” and pretend that the customer is talking about your twin brother’s mistakes or your co-founder’s product. This may allow you to avoid the trap of explaining to the customer why they have mis-assessed–how many times have you left a demo wondering “I don’t understand, we won the argument: how come we didn’t get their business?“– before you have encouraged more feedback and fully understood their critique.
August 25th, 2008
Negotiating a software deal, from either side of the table, can be different from many other negotiations that you enter into. I have been surprised over the years at how folks who are successful in other domains can fail one or more of the following tests as they negotiate a software deal.
- Have You Created the Basis for an Ongoing Relationship?
Software is the Promise of a Relationship: software typically involves getting your custom information into a new format (or creating information you would later like to translate into other formats) and almost always involves process and habit changes. The expectation on the vendor side is that the customer will contribute not only bug reports and enhancement requests but also additional maintenance and/or license fees over time. The customer expects the vendor to continue to maintain and enhance the product in response both to general changes in the environment and to specific requests from customers. If the negotiation leaves such ill feeling on one or both sides that a mutually beneficial relationship is out of the question, it’s not a good deal.
- Have You Assessed Both Yours and the Other Party’s BATNA?
In their 1981 book “Getting to Yes” Roger Fisher and William Ury coined the term “Best Alternative To a Negotiated Agreement” which they abbreviated BATNA. Both sides have a BATNA. It describes the status quo ante or likely result for a side if an agreement cannot be negotiated. You must continually assess not only the other side’s BATNA but your own as well.
- Explore the other side’s perception of their BATNA from the beginning. Their perception of their options will shape their negotiating position.
- Be careful in multi-way negotiations as a smaller firm, you may have been brought in just to give the appearance of adding a key feature or a lower price to the other side’s BATNA. For example, your offer may be used to induce another bidder to cut price.
- Are You Considering Something That Must Be Kept Secret After The Deal is Signed?
Assume everyone finds everything out! It’s rare that a negotiating ploy can be kept secret over the long run. Active misrepresentation in particular can be destructive to any ongoing relationship. However, you are not testifying during a negotiation: while I believe that you should tell the truth and nothing but the truth, you don’t have to tell everything that you know.
- Don’t assume that the other side is telling the whole truth: trust but verify.
- In “Negotiations and Resolving Conflicts: an Overview” Prof. Edward G. Wertheim of Northeastern University includes this guideline from a British Foreign Service Manual on diplomatic negotiation: “Nothing may be said which is not true, but it is as unnecessary as it is sometimes undesirable to say everything relevant which is true; and the facts given may be arranged in any convenient order. The perfect reply to an embarrassing question is one that is brief, appears to answer the question completely (if challenged it can be proved to be accurate in every word), gives no opening for awkward follow-up questions, and discloses really nothing.”
August 19th, 2008
Networking and referrals continue to be the primary marketing strategy for many community-based small businesses (especially those with limited budgets). In contrast, many technology-oriented small businesses rely more upon on-line forums, social networking sites, user groups, etc. to reach potential customers. I sometimes wonder if more old-fashioned ’schmoozing’ skills can help these companies get more customers–especially here in Silicon Valley?
First, we need to remember that networking and referrals are really two different things:
- Networking is the act of putting yourself in an environment to meet and interact with others.
- Referrals are what happens when someone introduces you to a third party who might benefit from what you have to offer.
I guess it’s a little like dating. You go to a dance to socialize with others (i.e. networking) and hope to get introduced to someone with similar interests (i.e. a referral).Getting a referral from someone is very special. They are sharing their credibility by referring you to someone you may not even know. They are essentially validating that you are real, credible and can do what you say you can do. This short-circuits the sales cycle considerably. While some referrals are nothing more than warm leads others can be considerably hotter!
So how can we all do a better job of getting referrals?
- The first step is to get out there and show up where everyone else in your industry goes. Sure there are a lot of referrals made using emails and over-the-phone but many more are made during face-to-face meetings.
- The second step is to give more referrals! The old adage that ‘givers gain’ is so appropriate. Go out of your way to refer your customers, partners and associates to others who could benefit from their services. After awhile you’ll notice them reciprocating and everyone wins.
- The third step is to simply ask for them. It is amazing how many business owners shy away from ever reminding their satisfied customers that their referrals would be much appreciated. I would also take things further and make referrals a strategic goal instead of a casual thing that either happens or it doesn’t.
Certainly referrals should not be your only marketing strategy to get more clients but it sure seems like every other strategy takes more time, costs more money and rarely gets the results that a dedicated networking/referrals strategy does.
August 6th, 2008
Len Sklar joins us in Milpitas this Friday, he will make a short presentation on “The Check is Not in the Mail” and answer questions on effective approaches to getting paid in full, on time, at less cost and without losing valued customers. Len came to our March 7 breakfast and facilitated some very well received interactive exercises: several bootstrappers in turn took the role of a delinquent customer and Len demonstrated a variety of low key techniques to move beyond a current deadlock.
RSVP and bring your questions Friday August 8 to the Omega Restaurant in Milpitas.