Sure, you can start a business, but can you get customers to keep it growing? Here's how to start.
The late, great management guru, Peter Drucker, wrote that the purpose of a business is to get and keep customers.
That sounds so simple, but it’s much harder to do.
Not only that, but start-ups face unique challenges when it comes to following Drucker’s dictum. After interviewing about 180 company founders for my forthcoming book Hungry Start-up Strategy, I have concluded that start-ups face the unique problem that the typical company or consumer will naturally resist buying anything from a start-up.
The reason is obvious to me--most start-ups fail. One rule of thumb from is that only one in 10 companies that a venture capitalist invests in generates a positive return--two more might break even and the rest will fail. And the typical VC interviews 1,000 start-up CEOs a year and invests in two.
Here are four things those successful start-ups do that their peers don’t.
1. Find customers with unrelieved pain. Not all customers are created equal. And the most successful start-ups begin their journey to get and keep customers with a simple idea: find the ones who have a problem that companies are not even trying to solve. Quite often those customers include the founder of the company. Consider Justin Moore. He is CEO of Axcient, a company that gives businesses easy backup and recovery for all their electronic operations.
Moore started the company because in his previous start-up, a computer problem had wiped out a year’s worth of work that he had to reconstruct.When he looked for vendors that could prevent that from happening again, he could not find any that met his needs. So he started Axcient. Of course, it’s risky to assume that your unrelieved pain will be widely shared. So you should conduct research to discover whether there are enough other people like you to justify building a business.
2. Build and refine a prototype until customers start using it. Next step is to put together a team of people in your company who can build a prototype of the solution. The team should spend time watching those pained potential customers work and listening to them discuss why this pain is important to them. These observations will help you work towards a way to relieve their pain.
By prototype, what I mean is a best guess at what you think will work based on your understanding of the customer’s most important unmet needs and your start-up’s capabilities. An example is Lore--an online platform that teachers use to interact with their students. A course at the University of Colorado Boulder tried Lore and gave its CEO, Joseph Cohen, useful feedback. For example, Cohen learned that he needed to develop a better way for students and teachers to share videos and other content in the online communal area for a course. After several versions, Cohen's solution was to let the teacher assign themes to the content. This created a single way to sort content -- assuring that users saw the most important content easily.
4. Don’t make customers pay for the basic version. Once you get a version of the product that customers want to use, let them use it for free. You might be wondering why that makes business sense. And the answer is that letting customers use a simple version for free provides you with benefits--the biggest of which is that those early users will become your best sales people. That is, those customers will tell their friends about how wonderful your product is and get those friends to start using it. And if those friends agree, they will, in turn recommend it to their friends. Moreover, once people start using the product, some will want, and be willing to pay for, a version of the product that performs more useful functions or has additional features.
Consider AlienVault, a Spanish company that wrote open source tools to help companies report on computer security intrusions.AlienVault developed a “vibrant, open source community” that used a so-called freemium business model (using the open source version of its software and charging customers for a commercial version). This means that AlienVault can grow faster with fewer high level sales people.This “go-to-market” approach leads to a different selling strategy. Instead of paying sales executives to spend months persuading top executives of its product’s financial and other business benefits and then getting technical buy in, AlienVault sells from the bottom-up. A company’s infosec professionals use its open source version, become persuaded of its benefits, and convince top management to buy the commercial version to get its “enterprise-level capabilities.”
As of August 2012, its CEO told me that AlienVault has “hundreds of paying customers.”
4. Be the chief customer service officer. To keep those hard-earned customers, the CEO must become your start-up’s chief customer service officer.Consider Yuval Baron, CEO of AlgoSec, a start-up that helps big companies comply with information security policies. Baron believes that AlgoSec is growing faster than the competition because its technology saves money and time for customers and because of its "obsession to make the customer happy."Baron bills himself as AlgoSec's Chief Customer Service Officer (CCSO), a role that involves reading customer satisfaction surveys, calling customers six months after they have signed on, fixing any problems that come up, and refunding the money of any customers who are not happy.And as CEO, Baron sets an example for his entire team.Follow these four steps and you get and keep customers--meaning you may beat the odds when it comes to start-up success.
Strategy consultant, start-up investor, teacher, corporate speaker, pundit, and author PETER COHAN has invested in six start-ups, three of which were sold for a total of $2 billion. Before founding Peter S. Cohan & Associates in 1994, he worked with HBS strategy guru Michael Porter.