The story of early-stage start-ups selling to global titans can sometimes read like Hemingway’s Old Man and the Sea: The unlucky fisherman Santiago returns to port exhausted after battling a huge marlin, with almost nothing to show for his efforts.
If you’re a fledgling software startup catering to businesses, landing a “big fish” customer can be similarly frustrating. Snaring that customer isn’t just a huge feat for your company—in the early days, it can be everything. That first large customer brings your startup much-needed credibility that can help lure future customers and new investors. Perhaps even more important, the big-fish deal likely provides crucial revenue and cash flow your young company desperately needs. Given how important such partnerships are, it’s tempting – and often expected – for early-stage startups to focus on just a few critical customers, at least in the early days, and customize products for them.
But is this always a good thing? How, exactly, do you avoid creating a super-tailored product that lands that critical big customer, but could limit its broader appeal? Today, I’m sharing three questions I believe every business software-startup executive should consider before committing to a product roadmap focused on one big-fish customer, instead of a broader pool.
#1: How do you balance catching whales vs. minnows?
First, you should remember that one company’s whale could be another company’s minnow. In other words, it’s important to think about how closely your product affects a targeted customer’s core business in evaluating how to approach the sales opportunity.
If you are selling the next great piece of networking equipment, for instance, a company like Comcast—which runs giant cable-TV, phone and Internet networks–is one of the largest whales for you. There will be long sales cycles, complex and costly integrations, and high post-sales support in dealing with this key customer. On the other hand, if you’re trying to sell Comcast a marketing automation tool, this customer might look like any enterprise that sells to consumers.
One of the key metrics to consider when targeting customers, and balancing your efforts going after both big and small buyers, is to create a sales pipeline of easily repeatable enterprise deals. One early-stage tech company with which I’ve worked recently highlights this. The company received considerable interest after using the same pitch with a global finical institution and a mid-market consumer product company. The consumer-product company could articulate a ‘simple’ single problem statement and make a decision with the people in the room. The mega-bank, however, had concerns about support, dozens of potential (and ambiguous) use cases, and no single decision maker. Considering the number of roadblocks that could stall a sale at the bank, the portfolio company was wise to come up with an easily replicable sales process and limit the number of whales in its sale pipeline; it could pursue, probably successfully, many more mid-market deals with the same time and resources that would have gone into closing a deal at the bank.
For most areas of emerging technology, there is a small set of whales that work well with start-ups. If most of your sales come from these large accounts, that may be a warning sign that your product is not accessible to the average enterprise. My advice is to spend a measured amount of time on these companies. Guide your sales team toward repeatable sales opportunities with metrics and compensation to fill the sales funnel with mid-market accounts.
#2: Does your product strategy open up new waters to fish in?
For product executives, the conversations with (and subsequent features implemented for) a small, targeted set of strategic accounts can lead to more sales opportunities down the road. So in this way, building relationships with these potential buyers can be just as valuable for gathering product and market intelligence for as they are for near-term revenue.
Consider a company like file-sharing giant Box, which discovered big enterprises valued specific product features that low/no paying consumer did not. In the end, Box successfully built a richer product-feature set that CIOs at bigger companies could endorse for enterprise adoption. Box became an enabling technology that an enterprise would pay for, rather than a ‘shadow’ IT problem to be stopped.
Conversely, development teams at startups often make crucial, early design decisions based on their own experiences, yet may not be aware of how these decisions will impact product adoption (or not) by strategic accounts. Consider some comments I heard recently from a group CTO of a major bank, who was speaking at a private meeting I attended. He was asked to opine on a common, critical decision many startups face early on: the company’s choice of a cloud-computing provider. He noted that if a company’s goal is to grow in the U.S. and be acquired, it might make sense to focus on using a single, outsourced cloud provider like Amazon Web Services. That choice can help a company get its product to market faster in a company’s preferred geographic region.
It’s critical, however, to consider how such early decisions could impact a startup’s first big enterprise, “whale” customer, as well as enterprise customer 100. In the cloud-computing example above, if the company’s goal is to grow into countries outside the U.S. or sectors outside an initial, core market, building a rigid and narrow product only with one cloud provider could disqualify you from an opportunity.
#3: Does the boat you’re building let you fish in the big leagues?
As a start-up, your product exists within a greater ecosystem of companies and technologies. Customizing for a large customer, to a point, can actually connect your company to broader sales channels within that ecosystem over time, and help boost revenue.
When trying to catch your first few whale customers, use the early engagements with large companies to understand your blind spots – both in business model and technology. Even if the deal falls through, your product roadmap should be significantly more robust.
Imagine a large customer is demanding that you integrate into a platform such as Salesforce. On the one hand, integration could erode your company’s perceived value since customers stop accessing your product via your website and go in through a third party instead. On the other hand, this integration can open doors to more customers by leveraging the partner company’s sales and marketing engine and remove a potential sales objection by some customers (e.g., you appear to be endorsed, in a way, by a big established company like Salesforce.) Big-fish customers can help create momentum by demanding integrations with the larger ecosystem companies and enable a pivot in product strategy.
As the leader of your startup, it’s up to you to decide how broadly you want to cast your sales net, and what your target catch-of-the day is. There’s nothing wrong with going after one or two big fish—and it’s usually advisable–as long as those resulting sales align with your company’s product vision, open new markets, broaden your customer base, or present you with a new sales channel. And remember: The sea is filled with lots of mid-sized fish, too, who may be easy to catch—and just as satisfying to snare.
The information contained herein is based solely on the opinions of Scott Goering and nothing should be construed as investment advice. This material is provided for informational purposes, and it is not, and may not be relied on in any manner as, legal, tax or investment advice or as an offer to sell or a solicitation of an offer to buy an interest in any fund or investment vehicle managed by Battery Ventures or any other Battery entity.
This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and is for educational purposes. The anecdotal examples throughout are intended for an audience of entrepreneurs in their attempt to build their businesses and not recommendations or endorsements of any particular business.