Derek Shanahan

wrongcustomers

Not Perfect Customers

This post is part of this week’s Startup Edition to answer the question: How did you get your first customer?

Early on as you begin building a company one of the most common things you hear from advisors and other entrepreneurs is “Who’s the customer?“.

At Foodtree, our early goal was to build a “digital farmers market” that connected people to the origins of their food. Our earliest users were foodies, food bloggers, and small food producers. They would use our mobile app or website to upload photos of their foodstuffs and tag it with origin metadata.

It was essentially crowdsourced food provenance, and we quickly realized that small to mid-sized local food producers were getting a lot of brand and marketing value out of the content being shared on the network.

We also realized that there really wasn’t a lot of room for those particular types of businesses to pay for new services – the margins in the food business are thin. On top of that, those business owners are incredibly busy growing, harvesting, transporting, and selling their food. We faced very real problems that would hinder distribution and adoption. Our path to revenue wasn’t clear.

As we were testing our early product while the farmer’s market season opened up, we met an organization that wanted to improve their website’s ability to show consumers origins and meta data for the food they certified. Along with a complete refresh of their website itself, this “provenance element” piqued our interest and we began discussing the project as a potential win-win for both companies.

As the deal came together, it looked like a great fit.

Looking back now, though, I can see clearly that it was too good to be true and that it had significant unforseen impact on our startup. We had taken on a Not Perfect Customer, and it ended up hurting us.

Let’s look at how and why that happened, and what you might do to avoid taking on a “not perfect customer” of your own.

What’s A Not Perfect Customer?

Originally, I planned on writing this post about my experience with the “wrong” customer. When I thought about it, though, the idea that you’d make the mistake of working with the wrong customer seems to imply you get it all wrong. That’s just not the case.

Landing the wrong customer will likely feel as if you’re landing the right one.

I think the signs you’re looking for to avoid the kind of customer that negatively impacts your progress are signs that suggest they aren’t a perfect fit for you. They’re “not perfect” but you find yourself moving forward with them for reasons I explore below.

Why We Signed A “Not Perfect Customer”

We all know that hindsight makes us experts, so it’s worth discussing why we pursued a Not Perfect Customer in the first place.

  • The revenue: This was our first big customer deal, so it was also the first large payment we collected. We were running out of money so the revenue lengthened our runway.
  • The validation: Signing a customer is a great validation signal for investors, employees, and other potential customers.
  • The use case seemed to fit: It felt as if the functionality they needed on their new website was perfectly in line with the direction we wanted to take our own product. It felt as if we’d found someone to fund internal product development.

Our Dangerous Assumptions

Looking back there were assumptions we made about the deal that came back to bite us. Some of these assumptions were:

  • Things go according to plan: Especially with larger B2B deals, the opposite is true. When I looked back on our original planning document six months after we’d started working together, I literally broke down laughing at how naive we’d been about the scope of the project.
  • Things happen on time: This is also a very dangerous assumption, in that almost everything takes three or four times longer than you’d expect when working with bigger businesses. We’d planned on a two month engagement (or thereabouts) to get us to launching their site. I think we launched it six months later, and I did my last bit of support for them over a year after we’d begun.
  • Support will be minimal: In all probably 70% of the time we spent on this project would be considered support. We’d conceptualized the project as a “simple website build”. It was nothing of the sort.

Some Critical Mistakes We Made

I think some of the signs we missed when we orchestrated our deal with a Not Perfect Customer are instructive for other startups in a similar situation. You’re eager to land customers (and should be) so you convince yourself these things aren’t important, but in reality they will be.

  • We agreed to build “other stuff”: We were interested in the deal because there was a piece of the new site which could be handled by our product. Having a customer pay for your product dev is great, but agreeing to build other things for them burns precious resources on non-essentials. A startup doesn’t have the luxury of devoting resources to non-core activities. This is very hard to remember in the face of a potential deal.
  • We were working with a committee: We didn’t foresee the number of different people and departments who’d decide to have input on the final deliverable. This alone added months to turnaround cycles and resulted in long lists of added tweaks and adjustments throughout the project.
  • We didn’t plan for the learning curve: I think it’s very important to assess the technology IQ of an organization you’re going to work with, because overestimating it can severely impact the level of support you’re forced to provide. Like I said, we spent an inordinate amount of time onboarding their team to the new site and how it would change their internal processes. A simple change you might take for granted at your startup can create meaningful ripples in other organizations, and you’re not done until the customer can use your deliverable.
  • We thought we could provide services: We weren’t blind to the fact that we were being hired as a vendor providing services, but we did underestimate what it means to provide those services. If you’ve operated as a services business already (or are bootstrapping that way) you’re far more prepared to work this way than if you haven’t. We hadn’t, weren’t very good at it, and never wanted that to be a core competency.

Final Thoughts

When I look back, I can see why we did our deal with a Not Perfect Company, and it’s hard to estimate the outcome if we hadn’t. Would we have gone out of business without the revenue? It’s possible. Would we have built our own product faster or found a better market fit earlier? That’s possible too.

What I do know is that I’d avoid a deal like that in the future if I could, mostly because of the unforeseen distraction it caused us as entrepreneurs and a company. I’d do everything I could to limit the outcomes we experienced by rigidly defining the deliverable and fully clarifying the hard boundaries of the project, down to the hours allotted.

As a startup, time is really the scarce resource, and we burned a lot of it because we took the wrong customer.

How about you?

Have you taken on a Not Perfect Customer?

I’d love to hear your thoughts about early Not Perfect Customers if you have them – comment here or hit me up on twitter!

3 comments
KristapsRomanovskis
KristapsRomanovskis

Really valuable article. Thanks for sharing the knowledge, I had similar experiences.

andydidwhat
andydidwhat

Hey, nice piece! I'm in an early stage start-up and I am foreseeing crunch decision like not deviating from our service for the sake of a good deal or whatever. 

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  • We agreed to build “other stuff”: We were interested in the deal because there was a piece of the new site which could be handled by our product. Having a customer pay for your product dev is great, but agreeing to build other things for them burns precious resources on non-essentials. A startup doesn’t have the luxury of devoting resources to non-core activities. This is very hard to remember in the face of a potential deal.

How did you resist future temptations after this?

dshanahan
dshanahan moderator

@andydidwhat Well, it's hard to forget the pain you go through, so it's a mistake you hope you only make once. That said, aggressively containing the scope of enterprise engagements when you're early stage is crucial. Lock down the scope of a project early on, and stage it out so that you're never on the hook for future work unless it's going swimmingly. 

It's hard, because a lead customer can be a great milestone. I just think it's important to remember that if things drag on and on, yours is the company that won't survive it - not theirs.