One of the main pieces of advice that founders get is the importance of “talking to customers”. Everyone from Paul Graham to Eric Ries & Steve Blank has championed listening to customers as the bedrock of building new products. But what if all customers aren’t created equal? And that listening to some could lead you astray?
This point came up during separate conversations I recently had with two enterprise founders. In the first case, the founder is an India-based SaaS company that has most of its initial customers locally and is now looking to expand in the US. In the second case, the founder runs a deep tech software company, also India based and similar to the first one, having initial customers local and now looking to expand in Western markets.
Both founders mentioned something interesting – looking back on their ~2-year journeys of building their products from scratch, they feel that building for their initial set of customers hasn’t given them the clarity they were hoping for and in many ways, might have even sent them down the wrong path.
In the SaaS case, to paraphrase the founder:
“Even today, I have no idea why these customers are buying my product or requesting a particular feature. It’s like they are asking for a buffet & choosing from it in a way that’s completely unclear to me.
On top of it, the exec buyer isn’t even bothering to check whether the teams are using the features being asked for.
Essentially, besides some small revenue, I am not getting any feedback or learning that can help me craft the roadmap. It’s all noise, no signal.”
As I was digesting this, I heard a similar sentiment from the deep tech founder just a couple of days after. To paraphrase again:
“Even though we are having lots of conversations with potential customers, given this space is super early in India, these companies have almost no useful feedback to share. The depth in understanding & appreciating the problem statement we are going after is just isn’t there.
Even though we have converted some of them to paid customers, I feel the way forward is still fuzzy.”
If you look at both these startups from the outside, they are doing all the right things – talking to customers, building what they are asking for & getting paid for it. They are hustling on the ground, iterating quickly, shipping features & doing everything that say a YC would have told them to do.
But on a closer look, both founders have an uncomfortable feeling that these customers aren’t taking them in the direction they need to go in (which is building a product that can scale globally).
What’s your next Base Camp?
I had previously written about Vinod Khosla’s concept of “Base Camps” – that any startup’s execution needs to take it from where it’s today to the next Basecamp. This is a strategic place of progress, de-risking, recuperation, and reflection. A milestone where the team consolidates & re-strategizes for the next phase.
The idea is not to hike aimlessly, but to execute a specific, long-term mission to reach the peak of Mount Everest, with Base Camps interspersed on the way. In the earlier examples, the current sets of customers seem to be taking the founders down random trails, giving them the high of working hard & burning calories on a hike, but not necessarily taking them closer to the next Basecamp on their respective Missions.
Importance of customer qualification
Peeling the onion on this philosophy a bit more, the idea of “customer qualification” becomes really important in this context. Founders need to deeply think through what their next Basecamp is, what they are trying to test & accomplish on the way, and what type of customers would get them there.
All customers aren’t created equal – some are more likely to be strong design partners as you build the initial product, while others might have deeper pockets but will also demand a lot of organizational bandwidth. Some might not be in your ideal target geo but can help you bootstrap & get market credibility. Others might be in your ideal geo but require a long sales cycle that could consume a significant part of your runway.
Also, these are dynamic situations. As the startup evolves, a customer that made sense to onboard 18 months back, may no longer fit the company strategy. Or the “purpose” the customer serves in the startup’s larger Mission might have evolved. Maybe it was a great design partner logo to have then, but can now only serve the limited purpose of being a cash cow to keep the lights on while a pivot is being executed.
Customer qualification needs to be an ongoing strategic priority in the go-to-market plan & serve as a critical gating factor in how resources are being allocated.
What’s key to qualifying customers at the earliest stages?
Three words come to mind here – judgment, courage & creativity.
If there is clarity around company/ product strategy & as an outcome of it, what the next Basecamp looks like (“where you need to go”), founders need to use their judgment & figure out what types of customers are likely to make or not make sense (“how to get there”).
These won’t be black-and-white calls in most cases, so investors & advisors on the cap table should closely support the founder in rigorously thinking through the approach, especially given the resources (capital & talent) either already at hand or what can be realistically gathered from the market (“what gets you there”).
Once there is sufficient clarity around what types of customers are your best bet to reach the next Basecamp, it’s time to ruthlessly execute that clarity. It could involve resetting expectations with existing customers, saying no to new feature requests, or even gently “firing” specific customers.
The courage to have tough, honest & transparent conversations will be a critical part of execution here. And as a founder dealing with an ambitious mission, limited resources, and high expectations of the team & stakeholders, you don’t need to be apologetic about this. In fact, you owe this to yourself & the company. And given most startups are default-dead anyway, what do you have to fear?
A quick disclaimer here – I am by no means advocating treating customers unfairly or dumping them without remorse. In fact, I have seen so many cases of enterprise customers being at the receiving end of a startup shutting down on short notice that I fully empathize with them being wary of engaging with really early-stage startups.
At the same time, it’s a brutal reality that most startups are default-dead & living on thin ice. Therefore, it’s totally the founder’s prerogative to do whatever it takes so that the company can survive.
Balancing the interests of your customers, who were also your earliest believers, as these hard calls are taken is where creativity becomes super important. In all likelihood, there is going to be no path where everyone around the table is going to end up happy. Founders, supported by their investors, need to think of creative ways that can minimize damage to customers.
As an example, a startup I was previously an investor in was making a hard pivot from serving individuals & SMBs to classic, large ACV enterprises. Obviously, the company could no longer afford to service existing customers in the former bucket while also building for the latter. However, the founders also realized that the software was in many ways, mission-critical for existing customers. So instead of turning off the existing product entirely, the company decided to put the product on maintenance mode, only keeping it live “as-is” with no shipping of new features. The founders had transparent 1:1 conversations with each existing customer, explaining the decision & the rationale. Almost all customers were happy to keep using the product.
A few years down the road, the company was being liquidated and the legacy product had to be shut down. The founder then shifted legacy customers to his private cloud so their business wasn’t disrupted. Treating early customers fairly while staying within the context of new business realities was a philosophical call taken by the founders & they stuck with it even after the company ceased to exist.
While running an early-stage startup, it’s easy to fall prey to the pitfall of seeking positive validation by onboarding any type of customer that’s ready to buy. Sometimes when capital is constrained, it even becomes unavoidable. I mean, who can say no to revenue?
However, in the long run, the strategic risk of onboarding a wrong customer often far outweighs any perceived short-term benefits. Founders need to be aware of the next Base Camp they are gunning for, and in order to pave the most efficient path to it, use a combination of judgment, courage & creativity to qualify customers ruthlessly but fairly. And lastly, do not feel apologetic about it!
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