It’s probably a no brainer that most startup companies strive for their first six-figure deal as soon as they can as this is probably on their top goals to strike off their list. Every startup business might be mislead with this thinking but in reality, this makes a startup lose sight of its primary intent.
These numbers are supposed to simply be an indicator of product/market fit. There might be startups reaching $1 million in Accounting Rate of Return (ARR) in just a few months in the running, but they do not have sufficient market momentum to get their next six-figure deal easily.
There are also up and coming companies that are so wrapped up about getting those first sales, they don’t validate the market and if they’re building the correct product or service. There’s even the focus on new logos that make businesses forget about keeping existing consumers happy, introducing unexpectedly high churn—something startups can’t afford.
Startup companies often forget about an important thing: their first six-figure deal and even their first customers are just meant to be the bedrock on which the rest of the business grows.
In order to get the flywheel moving, startup founders must constantly question what they’re learning about their market, product and go-to-market approach. This is because revenue is a delayed indicator of the success in sales. Although, this does not mean that revenue isn’t necessarily important and that there isn’t a great deal of urgency to it. Concentrating on making your first six-figure deal too much too early can obscure big problems that will harm your startup later when the stakes are higher.
By watching early-stage companies go through this crucial phase, we’ve gotten a few things for startups to take into consideration when it comes aiming for their first million.
Startup Companies and Customer Engagement
One thing’s for sure, it’s much cheaper for startup companies to retain customers by keeping them happy rather than spend on advertisements and whatnot to get new ones onboard.
Customer satisfaction is pretty much simple. It comes from the understanding that people get value from their purchase and is less about how much they paid for the product or service. A good example of this is tech startup, Aquabyte, which uses computer vision to identify sea lice in the $160 billion aquafarming market.
They’ve recently launched a new system called FreckleID (somewhat like facial recognition for fish) that uniquely identify a certain fish in a pen of 200,000. This idea was instantly loved by fish farmers that they were willing to pay was three times of what the CEO thought of.
Aquabyte is also investing heavily in making sure their initial customers are making progress with their product and are even charming them in unexpected ways like handwritten holiday cards. They have more prospects in their pipeline than they have capacity and this means that they don’t need to broaden sales to grow revenue quickly.
A Product that Sells Itself
When sales keeps hitting their numbers, founders believe that things are going fine, leading them to trust that the product is sufficient. The company then starts on chasing more revenue, not bothering on investing in a product-based growth engine.
The video conferencing application, Zoom, had triple-digit growth, nearly 300% in 2016, for the last four years in a mature video conferencing category that is a very concentrated market. Zoom’s head of marketing Janine Pelosi said the reason they were so successful before and after she arrived was they have such a great product. It’s an easy, reliable software-based conference room solution which the founder, Eric Yuan, is promoting each and every day.
Yuan knew the market really well coming out of web conferencing company Webex, and always touching customers meant he could modify company strategy correspondingly. Zoom exemplifies the real magic formula: know your market plus build great product.
Customer and Market Discovery
Perhaps the most important lesson of it all: it’s the number one job of a startup business to discover and understand its customer and market. Creating a clear and concise value proposition that is meaningful to all of a startup’s stakeholders, including its staff, customers and investors, is one of the first challenges any business owner faces.
In order to be truly successful, it is as paramount to understand market dynamics as it is to provide a great product. This also helps to focus your attention on all the aspects of your ideal customer profile; it needs to be more distinct than you think! This also then helps recognize customers for future sales.
Network security startup, Elevate Security, stood out in their overly concentrated security space because they carved out a distinctive position around people-powered security. With their early sales process, they carefully qualify who would be able to help them develop their products at best. Their first product got a lot of hype on social media from users who loved it which were indicators they had found good initial customers and were onto something novel.
In the end, your startup might consists of the smartest people with the coolest tech in the biggest market but remember that revenue is NOT the primary indicator, rather simply an indicator. It still goes down on your understanding of the chess-like risks and motions of the business.