Today is ZeroTurnaround’s 6th anniversary and it was on August 7, 2007 that we released JRebel 1.0 M1 (then JavaRebel). In the spirit of nostalgia and looking back through the years, I was considering what advice I would give to another Enterprise startup. And here is what I settled on:
WTF? Am I crazy? I just proposed that during the first year a new startup selling to enterprises should hope for nothing more than to lose 100 deals. That’s the reverse of the ultimate goal of any company–making money!
Ok ok, let’s step back a little and take this statement apart. I’m speaking of Enterprise startups, because the Enterprise market is more-or-less rational. People are typically buying products that solve real issues and they pay with someone else’s money. This means that there are few impulse buys and you can focus on making the product a solid offering, not just a flashy one.
Enterprise also means that the sell is somewhat up-close and personal. Even if the customer buys through self-service, he still typically interacts with support and with sales to some extent. That means that every deal, whether won or lost, is a wealth of information on why the customer purchased (or didn’t purchase). This way, you can learn about your real competition (the ones that the customer considers, not just the ones with flashy websites), about missing features and stability issues and lots more. All you have to do is listen and record every word the customer says.
The first year plan
The first year in the life of any startup is the hardest. Its a struggle to get your prototype into a minimal viable product, then recruit enough folks to look at it and iterate on the feedback. Often, a startup will put together a business plan, projecting sales numbers for the year and beyond. Just as often they miss the plan by a long shot and stress themselves trying to get any deals closed to keep on track.
The first year is the time where you try to establish the product-market fit. In other words, you talk to a lot of people in the market and change your product according to your understanding of what they want. At this stage, the hardest task is to create a correct understanding of people wishes and the biggest danger is to confuse noise with signals, e.g. a classical pitfall of going for noise vs the signal is building feature for a particularly large customer, but there are many other ways to over optimize things for a small market niche.
So my proposal for your first year is:
- January: Lose 5 deals
- February: Lose 5 deals
- March: Lose 10 deals
And so on, until you reach 100.
What do customers want?
Often enough customers will have specific wishes, which seem perfectly reasonable. You also make assumptions based on your personal experience, which you may or may not be able to generalize. To understand what is the signal, and what is noise, you need a wealth of reliable information. The only truly reliable information you can get is customers voting with their dollars.
By the way, don’t think that it is easy to lose deals. The only useful lost deal is where the customer tried the product, considered the pricing and you reached the decision maker on the right level. You also solved support issues, got back feedback on what other products are considered and at what price. This lost deal is a valuable one and it takes a great deal of work to get such. It’s just that winning deals can be impossible before your product is mature enough.
The ZeroTurnaround team and I have now brought two products to market. One of them is a mature, quickly-growing enterprise software product and the other is picking up steam. With both of those I made the mistake of going right for the sale instead of running a feedback cycle, even if I told myself otherwise.
With our first product JRebel, it took 2 years to get it from a nice-to-have gimmick to an amazingly valuable painkiller. The key insights were hard to come, as was focusing on getting the product stable and working instead of constantly pushing for features. Looking back I really wish somebody would have told me in 2008: Jevgeni, it’s ok, these things take a lot of time, listen to your customers and keep improving.
With the second product after a couple of false starts we set out to go and get the market feedback, and it’s working out great.
Losing is winning :)
By setting out to lose 100 deals, you are setting out to collect valuable experience and learn, without a preconceived understanding, that your product is ready for the market or the other way around. You are looking at the real feedback from real users and sooner than you expect you will start winning some of those deals and gain confidence that you are doing the right thing.
When you’ve won enough deals to understand the pattern behind them, you know you have initial product-market fit and it’s time to figure out how to make that process repeatable and start making some real money. That’s also the moment when you do create a sales plan and go for it.