This post is co-authored by Patrick Finn of Finn Advisors.
It’s estimated that 100,000 technology startups reach the basic funding stage every year. Angel investors (including friends and family members) help about half of these companies with their initial development. Fewer than 10% (about 4,000) are then able to show enough promise to actually receive a first round of capital from venture or private equity sources.
If you are an entrepreneurial manager who has reached this milestone, it’s a major achievement – your technology has progressed from an interesting concept to a promising commercial opportunity. You’ve probably demonstrated your product’s potential with a subset of customers, and now experienced investors are willing to place a bet on you.
The challenge becomes how to sell your product and create a sustainable revenue stream, so that you can further develop your product offerings, build your infrastructure, repay your investors, and pay yourself. Unfortunately, many tech startups get stuck at this stage because they can’t quite figure out a scalable way to go to market. Often, this is because they’ve been founded by technologists, and sales is not an area of expertise. Or perhaps it’s because the only person who is passionate enough to sell the product is the person who developed it. Or people may believe their invention is good enough to sell itself. So sales doesn’t become a focus of attention until cash starts to burn.
In our work with startups over the last several years, we’ve heard dozens of questions related to how to start thinking about sales: Should we put together a direct sales force or sell indirectly through others? If we sell directly, should we organize salespeople by market, industry, geography, company size, or some other principle? Will our salespeople require technical support and work in teams? Should we bundle maintenance and other services into our sales approach, or sell them separately? Can we get our product to market through other channels, such as social media or advertising? What about pricing? The list goes on.
The problem is that these are fundamentally the wrong questions to begin with. They all focus on the perspective of the startup and the technology, but startups need to take their customers’ perspective to understand how to approach the market. They should think about what the customers are trying to achieve and what problems they need to solve – and then think about how the product can help them be successful.
For example, earlier this year a five-year-old software company asked us to help its sales team do a better job of selling to large enterprise organizations. The company was already breaking even operationally after two rounds of funding. But despite some successes in pilot projects, the salespeople had not been able to expand their deals from “interesting trials” into ongoing revenue streams.
After talking with the VP of sales, the CEO, and several of the account managers, we realized we had heard a lot about the software’s virtues but much less about the customer problems and pain points that the software was meant to address. Eventually we asked this team to focus on three large enterprises and to describe the business challenges these potential customers were facing. Once they developed this context, the salespeople were able to identify a number of very large opportunities where their software could help.
For instance, they learned that one strategic objective of the customer was growing its data center hardware business. They then saw that their software, which could help data centers reduce operational costs, could be incorporated into the customer’s equipment just like word processing software is embedded into personal computers. This led them to see that one way to bring their product to market was to partner with this customer (and others like it) instead of selling directly to data centers. In this way their “customer” could actually be an important part of the go-to-market strategy.
Veteran salespeople might recognize this “consultative selling” approach and dismiss it as old hat. The point, however, is that the consultative selling mindset needs to start before the go-to-market approach is developed, and it must evolve as the sales strategy evolves. Figuring out how you go to market is not a one-time exercise for a new company; it should be an ongoing process, constantly informed by a deeper and deeper understanding of customer needs and how your product can meet them.
If you are part of a startup or a relatively new company that needs to accelerate revenue growth, consider how this approach might apply to you. Start by identifying a small number of very specific customers – either companies (if you are a B2B player) or desired consumer segments (e.g., urban professionals with specific characteristics). Then put yourself in the shoes of these customers by thinking about their issues and by talking to them not about your product but about their challenges and pain points. (Startup expert Steve Blank, for example, suggests that you talk to dozens of potential users as part of a “customer development” process.)
Once you’ve taken these steps, you can begin to experiment with a go-to-market approach with the expectation that you’ll continue to refine and change it based on experience and further insights.
Figuring out an approach for going to market is one of the toughest things for a startup to do. But without understanding the customer’s issues, it’s almost impossible to get right.
Ron Ashkenas' blog post on Harvard Business Review. Join the discussion.