Why do so many startups avoid the customer and lose the sale in the early days?
I recently delivered a guest lecture to students of Birmingham Uni interested in setting up their own business, on the subject of sales and marketing – and more importantly, getting those first few clients under your belt.
The session got me thinking about why so many startups fail to actually sell enough products or services, or even ignore the entire sales function. This unfortunately often results in many going under through lack of sales or traction.
Too often, startups avoid confronting customers in favour of locking themselves away coding or in product development. Or maybe doing activities that might be nice to do or enjoyable, but don’t actually result in money in the bank account. And after all, that’s what it’s all about.
Building what they need
We are often told that product is everything, that if you develop an excellent, top notch product it will attract customers: “If you build it, they will come”, to quote Kevin Costner’s Field of Dreams. Sadly, this simply isn’t the case. The main reason startups fail is because there was no market need for their product: in fact a staggering 42% of failed startups cite this as the main reason for failure. Therefore it’s probably prudent to make sure you’ve got an established client base during development, and develop your product based on their needs. This might seem like you’re putting the cart before the horse, but by making sure that there are customers willing to buy your concept ensures that any investment you put into product development will come back with results.
Product development in a vacuum might yield fantastic results from a development point of view: you could have a product that is truly innovative, years ahead of whatever else is on the market, or something that is completely and utterly revolutionary. But if there’s no one out there willing to buy it, where did all that money and time go? Sadly, pet projects rarely put money in the bank. Selling a product that responds to market demand puts money in the bank.
I feel the need to add a caveat to the above point about responding to market demand: don’t be a chaser. If your potential clients or competition are pressuring you to add features, it’s not always the best idea to agree with them straight away, especially if you’re not confident in that field. It’s better to focus on a core proposition that you’re capable of fulfilling, rather than tacking on sub-standard features that can drag down the overall quality of your business.
Now this might require you to start off as quite niche, being only able to meet the needs of a select few clients. But these core sales are essential. By building this kind of loyal, dedicated customer – whose needs only you can meet: you build a dedicated, steady stream of revenue. This is a great time to get case studies under your belt whilst you have the time, and are trying to establish your position in the market. Once this is established, you can start think about expanding to wider customer needs. Look at Amazon, for example. Amazon didn’t start off selling everything online, as they do today. They started off selling books, and books alone. Once they’d established themselves as a reliable, effective delivery service, they were able to expand their product range into broader fields, to the extent that you can now buy just about anything imaginable from Amazon.
Sales as a foundation
Having a startup that is too product orientated can have further issues in the long run. If you have managed to develop a product that is excellent, and is in demand, what do you do then if you have no one on staff with sales experience, or you don’t have the internal structure to support a sales team?
Your product then becomes a white elephant: it’s big, fancy, and a great conversation starter, but you’ll be haemorrhaging upkeep costs while you try and find something to do with it. By taking a sales orientated stance right from the get go, you can ensure that as soon as your product is ready to roll out, you can get it out to clients and customers on demand.
Now, this isn’t a quick cash method of building a startup. By focussing your product for a potentially small client base, revenue will be low for the first few years. But immediate mass market appeal doesn’t always equal a viable long term business. The above example of Amazon is an excellent one. Did you know that they didn’t turn a profit for the first nine years of their existence? Now they are the undisputed kings of online retail. They were niche, they only sold books, a product that doesn’t exactly go hand in hand with a tech business. But they built slow, and developed a core customer base before they expanded. They never ignored sales, but they allowed these sales to be small at first to guarantee consistency. Follow their model and other successful startups and be willing to start small, but make sure it is small with sales on board. Once you have an established revenue stream, no matter how small through some key sales, then you can start trying to appeal to a broader audience.
Keep the faith
Sales are the heart and soul of a startup, and you need to build a product around that. Building up a revenue stream is essential as it can give you the funds to then start building the product of your dreams. Don’t fear the sale, embrace it.
For some more info on why startups can fail at sales check out:
Rick Salmon: Why do startups struggle with sales?