There are some startups that have an obvious customer focus. These include ones that plan to sell airline tickets online or books online. Then there are the more esoteric ones, the ones that really plan to change the world with their technology.
The latter are the ones where the customer focus is not apparent, not because the startup can’t focus on one, but because it can bring value to multiple sectors. This is particularly for tech startups, where the tech has relevance or impact across multiple industries. Even more challenging is the startup focusing on an industry that is in the process of evolving, such as block chain or IOT. In such case, a question that founders find themselves asking themselves is which ones to go for first. It’s a question that investors also ask, but how to influence that is for another blog.
The obvious answer is the area where the technological edge is the greatest, right? Wrong! Much as this surprises most technology entrepreneurs, the one thing that customers are looking for is not technology differentiation; it is in fact perceived value. Therein lies the greatest gap of understanding customers, and weakness, of technology entrepreneurs.
Defining which customers to engage early on is not about revenue; revenue is but the end result of demonstrating perceived value in the eyes of customers. Customer interaction and demonstrating traction is to test the market potential and willingness of customers by getting them to pay for your product or service. This is similar to asking for a fee for something that you could also give for free – paying for something helps them appreciate it more. It is this appreciation that can translate to scale if you’re able to replicate it, and this is what gets you a deal you want, rather than a deal you’re forced to take, from investors.
Tech startups, particularly in Continental Europe including Nordics, tend to be more reticent about engaging with customers till their tech and product is ‘mature enough’. This risks over-maturity of the technology and commercial obsolescence of the product in the eyes of customers. More than once, I have heard startups say that when they want to customers with the product they felt was complete was the time the customer finally touched and felt the product for the first time. That’s when the real conversation about the customer requirements began. In the eyes of the customer, this was the first draft of what would ultimately become the end product that they could buy in volume. In all cases, the startup founders felt they had delayed showing the product to the customers while it was in development.
A good case of the risks of not engaging early with customers occurred with a flexible solar module company, which set up a factory to manufacture modules. Once the modules were ready, the customer for integrating these modules on rooftops told them that the wiring was vertical, whereas the modules were manufactured with horizontal electric flow. The result: no deal. The startup went bust soon after.
The second risk of going to market late and delay in creating complimentary networks with companies that can also use your product to move to value-added from cost-plus is that an inferior technology has the opportunity to become the de facto platform. The markets in multiple sectors are littered with products that could, should, have been in every household, like HD players.
As I’ve said before, done is better than perfect.