of customers, using a standard corporate presentation with an existing price list and standard terms, conditions and contract. The “Sales” title in an existing company is all about execution around a series of knowns.
Compared with big companies, startups need executives whose skills are 180 degrees different. Startups demand execs who are comfortable with uncertainty, chaos and change—with presentations and offers changing daily, with the product changing often, with probing and gaining insights from failure rather than high-fiving a success. In short, they need the rare breed:
open to learning and discovery—highly curious, inquisitive, and creative
eager to search for a repeatable and scalable business model
agile enough to deal with daily change and operating “without a map”
readily able to wear multiple hats, often on the same day
comfortable celebrating failure when it leads to learning and iteration
We suggest replacing traditional execution-oriented sales, marketing and business development titles with a single title: the Customer Development team. At first, this “team” will consist of the company’s founder(s), who talks with customers to gain enough insights to develop the minimum viable product. Later, as the startup moves into customer validation, the team may grow to include a dedicated “sales closer” responsible for the logistics of getting early orders signed. The closer shouldn’t be confused with a traditional sales VP. To succeed in this process, the team must have:
the ability to listen to customer objections and understand whether they are issues about the product, the presentation, the pricing or something else (or the wrong type of customer)
experience in talking to and moving between customers and engineers
confidence amid a state of constant change, often operating “without a map”
the ability to walk in their customers’ shoes, understanding how they work and the problems they face
Some would say this checklist isn’t bad for identifying great entrepreneurs.
Rule No. 12:
Preserve All Cash Until Needed. Then Spend.
The goal of Customer Development is not to avoid spending money but to preserve cash while searching for the repeatable and scalable business model. Once found, then spend like there’s no tomorrow. This paragraph is worth deconstructing:
Preserve cash: When a startup has unlimited cash (Internet bubbles, frothy venture climate), it can iterate on its mistakes by burning more dollars. When money is tight, without dollars to redo mistakes, it’s crucial to minimize waste. The Customer Development process preserves cash by not hiring any sales and marketing staff until the founders turn hypotheses into facts and discover a viable product/market fit.
While searching: Customer Development observes that at the start, the company and its business model are based solely on hypotheses, not facts, and that the founders need to get out of the building to turn these hypotheses into customer data. This “get out of the building” approach, combined with rapid iteration and pivots, is central to the model’s customer discovery and validation steps.
…preserve cash while searching for the repeatable and scalable business model.
Repeatable: Startups may get orders that stem from board members’ customer relationships, engineering one-offs, or heroic single-shot efforts by the CEO. These are great, but they aren’t repeatable by a sales organization. Search not for the one-off revenue hits but rather for a pattern that can be replicated by a sales organization selling off a price list or by customers regularly visiting the website.
Scalable: The goal is not to get one customer but many—and for each additional customer to add incremental revenue and profit. The test is: Does the addition of one more salesperson or more marketing dollars bring in more gross profit (or users or clicks) than you invested? Who influences a sale? Who recommends a sale?
Who is the decision-maker? Who is the economic buyer? Where’s the budget for purchasing this type of product? What’s the customer acquisition cost? Affirming the repeatable, scalable sales model is the customer validation step of Customer Development, its most important phase. Has the team learned how to sell a target customer? Can this happen before the startup runs out of money?
Search not for the one-off revenue hits but rather for a pattern…
Business model: A business model answers the basic questions of how the company makes money. Is this a revenue play, or is it a freemium model seeking users? Something else? Who’s the customer?
Spend like there’s no tomorrow: The goal of an investor-backed startup is not to build a lifestyle business. The goal is to reach venture scale (10 times the return on investment or more). When management and board agree that they’ve found a repeatable and scalable sales model (i.e., have a product/market fit), then invest the dollars to create end-user demand and drive those customers into the sales channel.
Rule No. 13:
Communicate and Share Learning
An integral part of Customer Development’s “learning and discovery” philosophy is sharing everything that’s learned outside the building with employees, co-founders and even investors.
The traditional way to do this is via weekly company meetings to keep employees informed and board meetings to let the investors understand the progress made in the search for the business model. But technology in the 21st-century has taken us to places we never could get to before. We can now communicate all we’re learning in near-real time to everyone who needs to know.
We strongly recommend that the founders keep and share all their activities in the customer discovery step covered in Chapter 3 via a blog, CRM or product management tool. A powerful tool to help founding team members and their investors and advisors communicate about progress in evolving their business model and sharing or discussing customer discovery has been developed in concert with the authors and can be found at LaunchPadCentral.com. Think of it as a narrative of the customer discovery process. It records hypotheses the startup started with, who the team has talked to, the questions asked, the tests conducted, what’s been learned, and questions for advisors or investors. While this may seem burdensome, it takes less time than having a weekly coffee with an advisory board member. What results is a communications tool allowing outsiders to view the company’s progress up close and to offer suggestions and course corrections.
Rule No. 14:
Customer Development Success Begins With Buy-In
Customer Development’s “learning and discovery” philosophy can be immensely disorienting to a founder, engineer or investor who has spent his or her career executing a plan. For Customer Development to succeed, everyone on the team—from investor or parent company to engineers, marketeers and founders—needs to understand and agree that the Customer Development process is different to its core. If the engineering VP is talking waterfall development or the board demands a rigid timetable, Customer
