Prof. Jan Bosch
Entrepreneurs are, by definition, irrational optimists who have strong confidence in what they’re pursuing. Even if all of us can have bouts of doubt, entrepreneurs are managing these doubts and focus on executing on their convictions. The risk, however, is that you start to believe in your own convictions so hard that you fail to be responsive to outside input.
One of the hardest challenges in startups is the balance between building based on your conviction on what the world needs or is going to need and incorporating feedback from customers and the market. Only listening to what customers say will result in too small a delta compared to existing products. And if you don’t offer a 10x improvement in some dimension, there typically is too little incentive for potential customers to go through the pain of switching from whatever they’re using today.
On the other hand, ignoring input from the market and blindly building what you believe is needed is a sure way to fail. People aren’t going to buy from you because of the compelling story you tell. They only buy from you because your offering provides some significant benefit over alternative solutions. Entrepreneurs are by necessity rule breakers and, by and large, tend to ignore market input longer than what’s good for the business.
A complicating factor is that many startups aim to exploit some technology, standard, trend or regulation that has the potential to disrupt an existing business ecosystem. The disruption is often in the early stages, as others will already have jumped on the opportunity, and the startup is basically betting the farm on hitting the market with a sufficiently compelling offering right when the disruption is gaining momentum. That means that collecting relevant feedback from the market is impossible as there is no market yet.
This explains why, according to some research, the primary success factor of startups is timing: being at the right place at the right time. Not very satisfactory for people who try to develop predictable and repeatable patterns for startup formation but a reality that we all have to contend with. Whenever I ask entrepreneurs why some idea or startup failed, in a significant number of cases it’s some event or development completely outside the scope of the startup’s control that knocked the whole company off course.
In my experience, though, the common factor in all companies I was involved in that didn’t do so well is lack of sales. Sales cures all ails, the saying goes, and it really is the case. As Peter Drucker famously said, the purpose of a company is to create a customer. Failure to do so can of course lie in an insufficiently compelling offering, but as often, it’s failing to find the right customer for what you have to offer. The idea that many engineers have, ie that a good product sells itself, isn’t true at all and most certainly false for startups.
'Your initial customers may not at all be the right ones'
My main learning in this context is to make happy customers. Many companies fall into the trap of making customers happy. There’s an important distinction. In the latter case, you focus on the customers you have and try to make them happy. The problem is that your initial customers may not at all be the right ones. For instance, one company I worked with managed to secure a few very large customers who were then continuing to demand such amounts of dedicated attention that this consumed all R&D resources. As a consequence, the company was unable to expand to new clientele but had grown dependent on the revenue these few large customers brought in.
Making happy customers starts with defining the profile of your ideal customer. You then continue to sell to the potential customers fitting your profile. Any customer who, over time, proves to not be the right match for you, you may decide to fire. Or, at least, you don’t give in to requests that deviate you from the customer profile you’re looking to serve.
Being clear on the customer profile you’re looking to serve also helps in aiming to time a market disruption. Although most consider a disruption to be instantaneous, for those on the inside it’s clear that it’s a slow process with a few companies getting into the transition early and the majority following at a later point in time. Finding these early movers, making them your customers and then together with them experimenting your way through the disruption is one of the safest ways forward for a startup; it gives early feedback on the suitability of your offering and gets you ready for when the tornado hits, as Geoffrey Moore calls it.
Startups need to carefully balance a solid belief and confidence in the core idea behind the company and incorporating feedback from the market. Straying too far to either side is a recipe for failure. The best approach is to “make happy customers” rather than making customers happy. That allows you to find those early adopters and work with them. It still leaves you with the challenge of scaling to serve the larger market, but that’s a concern for a later time. If you don’t survive now, you’ll never have the challenge of scaling, so why bother worrying about that now?