Monday, January 13, 2014

A Valid Business Model Requires Real Customer Sales

dogs-eat-dogfood“Will the dogs eat the dog food?” This rather crude expression weighs heavily on the mind of all good startup founders, no matter how confident they appear. We all know the products they give away, and the ones purchased by family and friends don’t count. The real milestone, proving the business model, is that first product sold for full price to a total stranger, leaving him happy.

So what can you do to expedite this event, or even improve the odds that it will happen at all? Of course, one sale isn’t really enough, so you need to get the first customer to recommend you to a second, and make sure the rate of sales ramps up quickly enough to keep the business alive and growing.

This whole process is particularly worrisome to many startup founders, since their expertise and background more likely technology than sales. If you are one of those, here are some basics principles you should follow and live by until that milestone is behind you:

  • It’s the market, stupid. I still see too many entrepreneurs who build a product and spend lots of money because THEY are in love with the idea or technology. There is no substitute for good market research, talking to experts, analyzing the competition, and listening to potential customers from day one.
  • Sell what you have, not what you dream. Customers don’t buy the impossible dream. I believe in pre-selling and early marketing, but make sure you don’t oversell what you can deliver. I recently knew a founder whose sales pitch was always the next generation of his product, and he never understood why customers always decided to wait.
  • Your revenue model has to make sense. If you lose money on every sale, it’s hard to make it up in volume. On the other hand, if your price is over the moon, even the best product features probably won’t sell it. Many of the Internet business plans I see these days say the service is free, and revenue will come later from a huge user base. You need deep pockets to make this one work.
  • You need a sales channel that works, and one you can afford. Even with the global reach of the Internet, selling your first product from your website will likely not be much of a business. To get the reach you need probably requires one or two levels of distribution, partnerships, or joint ventures. Direct sales are too expensive, and word-of-mouth is too slow.
  • A product, without customer support, is not ready for sale. Remember that your ultimate goal is satisfied customers, not just the best product. The sales process has to be smooth, the customer support impeccable, and the customer-facing people delightful and empowered.
  • Selling is a learned skill, and takes effort, just like building a product. Everyone in your startup needs to understand sales, and needs to be a salesman. Don’t assume that only “fast talkers” are good salesmen, or that you can hire a good salesman at the last minute to sell your product. The best salesmen know their products and their customers better than anyone else, and they believe in both. That should be you.

I’m certainly not suggesting that you wait until all these items are perfect before you open your doors. If you do that, you will never achieve this milestone. The real job of an entrepreneur is to manage the right variables, with the right level of risk, to get and stay just one step ahead of their competitors.

What I am suggesting is that you laser focus on that first real customer from the very beginning. His real requirements might keep you from getting sidetracked by all the neat features your technology could deliver, and your dreams of delivering the perfect product. What you really want is a successful business and all your customers to be happy puppies.

Marty Zwilling


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4 comments:

  1. There is no substitute to real sales and real money. Dreams and reality need to be separated for a successful business.

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  2. It's the market, stupid. I still see too many entrepreneurs who build a product and spend lots of money because THEY are in love with the idea or technology. I agree with you, because if you look at the situation of the market and detail the market research reports, it is possible to understand how the market works at the moment.

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  3. The business sale report has helped us fill our investment quota for the year, we will definitely be using it in the future. thailand business for sale

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  4. The business model is really a fabric that get the whole business function. I have detailed this out in my blog on Business Models here http://soentrepreneurship.blogspot.in/2014/01/business-model-creating-fabric-to-link.html

    ReplyDelete