27 August 2013

4 things to help finding good first customers - and preventing your product to become net sinker

In the 1990s, I led a startup company that launched wireless payphone as one of its first products. At the time, such solutions had a large customer potential, even in Finland - cell phones had not yet taken the role of everybody communicating everywhere.

The first customers of our product were mobile operators AIS (Thailand) and MTN (South Africa). Agreed volumes were significant, we cooperated well in the definition and implementation of product characteristics and also the deliveries and installations went smoothly. So, we got excellent references.

But business of these products did not develop as expected. Yes, we did work hard, and we got a reasonable amount of new customers - what went wrong ? There are probably several reasons, but here I would like to highlight only one: The first customers were not necessarily "good" ones as regards to future economic success of the product and the company.

In this post I bring forth four important factors, which need attention, when identifying essential characteristics of a good reference customer. Hygiene factors, such as large enough customer purchases or high enough price level, are not discussed here.

1. Customers with right type of needs

In the case of our company, AIS wanted to use our product for telephone services in taxis, mainly in Bangkok. In a big city, famous for traffic jams, there was definitively demand for this kind of services. MTN, on the other hand, was offering telephone services in remote villages, lacking other means of communications. Later, it turned out that these types of needs were not sufficiently in demand in other market areas or meeting the needs was not economically viable enough.

Customer jobs to be done, or needs, have to be so widespread, that there is large enough market potential for a company to target. Especially, if your product is technologically advanced or otherwise innovative, it is usually fairly easy to find customer companies, who are keen on new technologies or want to use the product  to disrupt industry structures. These companies are sometimes excellent partners to initialise mass markets. Very often, however, their needs are too exotic or context-dependent, leading to mismatch between requirements to achieve a wider market and product features and business model.

2. Large enough customer segments

Our first wireless payphone customers were mobile operators, and though we were later able to win other types of customers, such as payphone operator British Telecom, the first customers had a profound impact on our segment approach and focus. As such, Thailand and South Africa were excellent reference markets, but we were not able to utilise them adequately enough, because in other markets we were often targeting wrong kind of customer candidates.

Good reference customers provide a vendor not only reference value, but also a roadmap for who to approach and how, when aiming to get new customers. Best references are like beacons in their industry, their activities and business decisions are tightly followed by other players and imitated as much as possible.  Similar type of operating environment or geographical proximity is also strongly affecting the strength of references. By creating solid insights on right marketing and sales channels, vendors are creating a repeatable model to expand to new market areas, to generate demand in these markets and to identify right type of prospects.

3. Lucrative revenue model

AIS and MTN preferred to purchase our products in such a way that only some installation, training and maintenance services were included. Although we had developed a very modern remote management system for our products, also taken into use by these two customers, we were not able to agree on significant revenue streams in our agreements. The approach, requested by our customers, focused on one-time investments, had a significant impact not only on our revenues but also on customers' own business and expansion plans.

At its best, a good revenue model makes planning and execution of purchases easy for customers, as well as supports successful business building and expansion - and enables vendor to develop and grow his own business. First, the scheme must, of course, be acceptable for customers. Most probably it is impossible to sell a very exotic construction, unless superior benefits can be demonstrated through references or otherwise. On the other hand, a successful model generates additional customer orders and helps providing great business case examples. Business logic reproducibility with multiple customers is an excellent signpost for good results.

4. Purchasing processes to support scaling

In both AIS and MTN organisations strong individuals and teams drove our shared projects. Already before the first contacts, they had views and even some plans, how to build business around payphones. The responsible teams in both companies were at least partly outside of formal decision-making structures.

Identification of individuals involved in purchases and understanding of purchase process are the foundation to develop effective sales argumentation and scalable sales process. Customers that are willing to openly go through their way of purchasing and name influencers affecting it, not excluding any complications related to the process, are ideal partners here. In addition, these companies need to well represent their reference group in their shopping behaviour. When sales process and argumentation are properly developed and documented, it is possible to transfer this knowledge to new sales cases and personnel, effectively scaling the business.

Epilogue: Net sinkers

And what happened to wireless payphones ? On the other hand, we got some great news. For example, in South Africa human lives were reported to be saved, enabled by our products and calls made with them. But in a Southeast Asian country our products, delivered with colourful cover, found an unexpected use purpose: Local fishermen bought our products second-hand, with a low price, and found them some good reuse - to attract fish and acting as net sinkers.


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