Make sure your first customers are real customers

With all the excitement of building the product, getting the code ready, and launching the product, it’s very easy to leave your go-to-market strategy until after launch. It happens all the time; founders do a Press Release and then wonder why the phone doesn’t ring. Ideally, founders would have been in constant with prospective customers during the Beta phases so that the launch itself is a seamless progression of a newer version of a product, rather than a milestone where the founders then say “Ok, now let’s concentrate on the sales thing”. This is of course especially true for B2B products (true also for B2C software products, but at least then distribution is less of a problem). From the many enterprise B2B startups I’ve seen, the wrong process generally goes something like this:

  1. Develop (maybe get some feedback during this process, maybe not)
  2. Launch (make a press release, try to get some mentions in press)
  3. Phone doesn’t ring, no callers. Realization that B2B products must be actively sold.
  4. Call up the beta testers, partners, and customers you originally got feedback from (hopefully such a list exists)
  5. Offer them a free trial. (For enterprise software this also means you probably do an installation on-site, at your own expense!).
  6. Search for other potential customers and offer them the same, thinking, “If only we could get a reference customer we would have credibility”.

The problem with this strategy is that even if a few customers are won, it’s hard initially to tell if they are real customers. By “real”, I mean they internally made the decision that the worth of your product is great enough for them to pay for it. Breaking that down:

  • “made the decision” – If a free trial is available by simply downloading the software or filling out a form, then you don’t have confirmation that a decision-maker in the company approves of the product. Until the decision maker actually obligates the company in some way for a payment, you don’t know how serious he is as a customer. There is a world of difference between the CEO that says “ok, we need this” and the lowly employee that wants to try it out risk free, since he doesn’t obligate the company in any way (meaning he doesn’t get approval beforehand). Direct sales are very time and manpower intensive and you as a founder should be concentrating on the most promising leads, the ones that are serious about the product. Making a product available for a free period moves the question of seriousness further into the future and makes it hard for you to determine which customers to prioritize.
  • “worth of your product” – Getting the product to a point where the market approves of it and recognizes that it solves a pain point (the Product / Market Fit) is a big challenge, often requiring many iterations of the product (or the market). Hitting this point is a big deal, but it’s only truly hit when you see customers verifying your hypothesis on what they need. A customer “trying something out” doesn’t do that.
  • “pay for it” – This point is easy. Cash in the hand is the only true verifier that a product is appreciated. This part has also the added bonus that it verifies your pricing model (or not), making cash and financial planning easier.

Dharmesh Shah made a great point on this topic several years ago, that instead of offering a free trial, you should offer a money back guarantee (with a longer period). The great thing about the money back guarantee is that it addresses all three points above. The money is paid, meaning that internally the decision maker agreed to it, and the worth and pricing of the product is mostly validated. This filters your lead-list into customers that are serious enough to make that decision, while still allowing you to offer to them what they psychologically perceive to be low risk.

It dramatically changes the dynamic of the customer relationship as well, since they will see themselves as customers during the money-back period, as opposed to prospective customers in the trial period. While there will always be some customers that want their money back, the good news is that unless the customers feel tricked, keeping this churn rate low should be doable.

As an added bonus this method also improves the cash situation of the company, since you are being paid earlier – always a good thing for a startup.