Tuesday 31 May 2011

Getting your first Customers (Don’t give it for free)

Getting your first Customers (Don’t give it for free)
I learned early in my career that nothing comes for free, and early stage companies need to keep that in the back of their mind as they approach initial target clients. Stakeholders, whether they be shareholders or promoters , knowing the importance of getting the first user of their product/service and early customers, often don’t think through the consequences of giving away their product or service at deep discounts or for free. In addition new on-line businesses often have a freemium model to get users and potential clients using a basic level of their on-line solution, with a view that they will buy the premium offering once they get hooked on the service. I am not suggesting that these approaches are wrong, what I have observed is they are not thought through, and thus ultimately often do not deliver the expected benefits. This opinion piece is intended to provide a few pointers for readers as to how to secure the target value intended, by reducing the price to early customers. Some considerations are as follows:-
Pricing
Trading
Alpha Customers
Beta Customers
Proof of Concepts & Pilots
Conversion to paying customers
Pricing
Pricing is a subject of a separate opinion piece, so there is an assumption here that the research has been done to design your pricing model. You made need to test pricing in the market, however don’t mix this exercise up with securing early customers. I have often seen organisations set their pricing based on what they can get from an early customer, or worse have a different price for every customer even though the value proposition is fundamentally the same. That is not to say pricing may differ depending on the product/service or specific sector.
Trading
There is an inherent value in your product or service, the value will normally be reflected in your price, but for some organisations it may be a social value in the broadest terms (NGO, Public Sector, and Association). I am largely concentrating on commercial organisations, however the principals apply generally. So right from the start of our organisation engaging with potential clients we should have a trading hat on. What does that mean? It means as we reduce the price for our product/service proposition, with the objective of securing early customers, we get something in return. What we get in return may differ from organisation to organisation, examples:-
·         Subject to the customer achieving an objective, they would move closer to the target market price at a future date.
·         The customer would provide data and information to your organisation to help inform you on the product/service performance or opportunity for improvement.
·         The customer would act as a reference
Similar thinking can apply to the on-line e-business model also.
I recommend a simple contract/agreement in all circumstances so that the responsibilities of both parties are defined, deliverables and benefits defined, commercials are defined, IPR is protected, and a roadmap towards full commercial relationship with the early customer is outlined.
Alpha Customers
Alpha customers are customers who agree to engage with your organisation in the very early stages of the new product/service life cycle. They are important to your organisation because you can have real world customers inform your design process and validate any market assumptions. You are important to them because they feel they can influence your product/service to match their business needs and perhaps get early access to you product or service giving them some form of future competitive advantage. The trade with an alpha customer is largely information. Make sure processes are defined and documented agreement is in place.
Beta Customers
When an organisation has a market ready product/service and before full market launch, it is good practice to trial the product or service with a small group of friendly customers. For the customer they get early access and additional support from your organisation,  you get real world validation and potential early production reference clients. In trading with these clients you will give them advantageous commercial terms and additional supports, they will give you information, references etc . . . . It’s important that the agreement acknowledges that they are taking early releases of your product, which has been fully tested but may have teething problems and that additional supports and services are being provided should these issues arise. Warranties and liabilities will be waivered to some degree for a period. It’s important that your organisation does not see the primary objective of a Beta customer as testing of your product or service, what it is, is real world validation after testing. It’s also important the timeline and roadmap towards full commercial pricing and terms are outlined or you could have an un-profitable customer on your books for a life time.
Proof of concepts (POC)-(Pilots)
There are two types of POC which have a customer engagement. 1) Alpha or Design POC and 2) Beta or customer POC. The principals for both are very similar:-
·         Objectives: The objective is to prove some concept/theory, so a clear set of qualitative and quantitative statements need to be made, so stakeholders can determine if the concept has been proved.
·         Scope: The scope of a POC is limited usually in time, cost, and function which should again be clearly stated within the concept of the objectives.
·         Assumptions & Conditions: These need to be defined in the context of the objectives and scope so assumptions can be validated and conditions can be controlled.
·         Approach: Defines how the POC will be executed
·         Deliverables: What are the tangible and intangible outcomes expected. What are the impacts and results we desire.
·         Consequences: This is the most important component and the one most often omitted. What will happen if the concept is proved? Inconclusive ?, Unproved ?
Alpha POC: - Might be we have a preferred technology to be designed into our new product and two alternatives, working with supplier partner A, and customer partner B, we will build and test a subset of the product or service and the best outcome technology will be selected and designed into final product or service and the customer will agree to be a Beta client.
Beta/Customer POC: - The customer is procuring a product/service/solution they are unclear as to whether your solution is the best value proposition as compared with alternatives, and you agree to run a POC. If the POC is proven then the customer agrees to buy or include in a procurement process, or move to full list price. (If the POC is paid for or partially funded by the customer, agreement is needed on what happens to a POC IPR after the POC)
Conversion to Full paying Customer
If you have a free offering, or deep discount offering to secure clients/users, it’s essential to have processes, models and skills that convert what are effectively traditional sales leads and opportunities to full paying customers. Remember it’s just part of the customer acquisition and sales process at the start of the cycle, what we want to do is accelerate towards being a full paying customer. You are starting an engagement with a potential customer. Think of it as the courtship phase and consummation of the relationship is when the customer parts with money and you deliver your full product/service. Traditional selling models are well documented, however new e-business model require close attention, the term land grab is often used to maximise the number of on-line users, perhaps through giving entry level services free, however a strong structure/process is required to maximise the conversion rates to paying customers, and equally as important is to minimise churn, that is continue to ensure the customer is using and deriving value from being a registered, fee paying customer. Conversion techniques:
·         Usability is the very first step in ensuring you capture new potential clients and start moving them towards fee paying customers. Regardless of the device they access from whether PC, Laptop or other mobile device such as a smartphone, make it attractive. Simple, intuitive, short cycle and logical to find, register and derive initial functional value from the e-service/product. Obviously make sure it’s visibly secure.
·         Where am I?, Confirm at every key stage of the engagement process on line and by email/txt what progress has been made, what benefits can be derived, and what the next step for them is to derive additional value.
·         Profile: Maintaining appropriate and compliant personal data monitoring records, profile how individuals and groups are using the on line service in order that future interactions can be customised for them to derive additional value and benefits and for you to secure additional revenues.
·         Build a dialog: Start and maintain conversations with your users on topics they are interested in, offer advice and incentives so they can derive more value from being a registered user and customer.
·         Create dependencies: In the customers engagement with the services/products deliver such value and emotional commitment that it makes it hard for them to leave, ideally it’s better for them to stay and develop using your online product/service versus the cost and disruption to move to a competing or alternative product or service.



Monday 23 May 2011

The importance of Beach-Head Strategies to early stage enterprises

Getting into business (Have you a Beach Head Strategy?)
Recently I have either met with or reviewed start up plans for over 40 new enterprises, I was surprised that many, when presenting their plans to enter or develop their initial customer base had very broad criteria for targeting sales. Initial review suggest most of the organisations had a valid proposition, however we know that despite this many still fail (for many different reasons). The primary reason is a lack of focus and precision. Start-up & early stage organisations are generally resource constrained, so every decision to invest time is an opportunity cost decision, i.e. when they make a decision to invest in one thing; it is at the expense of some alternative. This is particularly true when it comes to securing initial customer sales. The key to success is to have a beach-head plan.
In this piece we consider the following:-
·         What is a Beach-Head strategy/plan
·         Symptoms of the absence of a Beach-Head
·         Goals for a Beach-Head
·         How to establish a Beach-Head
·         Concluding the Beach-Head
·         Beyond the Beach Head
·         International and virtual Beach-Heads
What is a Beach-Head strategy/plan?
The Beach-Head strategy is a strategy whereby the promoters have identified a clear, defined customer profile/segment that will most likely be the first to purchase the new product or service. It provides a framework for Sales & Marketing focus, customer engagement and the use of scarce resources. It is a term derived from military engagement, when planning an attack where and how will the forces penetrate and expand their capture of territory.
Some Symptoms indicating a lack of focus on a Beach-Head!
·         “This technology has applications in sector A, B, C and D”
·         “This product solves problems in Financial, Engineering, Life Science etc. “
·         “We are marketing the product in Europe, Asia, America & Greenland”
·         “We are talking to a client in Boston and in Bangalore”
·         “I was in Belfast yesterday talking to a bank and this morning in Cork talking to local Govt.”
I am not saying that some of the above are not applicable in some circumstances, but these statements suggest Market & Customer research and analysis are being done on the fly during the sales process.
Goals for a Beach-Head Strategy
The beach-head strategy is to allow focus so that the organisation and its resources can accelerate market, client & Revenue acquisition progress. There needs to be clear measurable goals and timeframes for the beach head, these may include some or all of the following:-
1.       To commercially prove the product or service
2.       To refine the product and/or service
3.       To prove/refine the business model
4.       To secure X reference clients
5.       To secure and demonstrate the commercial viability of the venture (Customers are willing to buy the product and/or service-and its profitable)


An approach to establishing a Beach-Head Strategy!
Ideally in the very early stages of a business, a feasibility study has been completed, during this feasibility study quantitative & qualitative information should be acquired, which provide the enterprise promoters with some clues of where and how to sell to their first customers.
Having a clear understanding of the problem your product or service solves for the client, or the opportunity in the form of value for the customer, is the essential starting point.
Define a sweet-spot early customer profile (Most likely to purchase)
To do this some or all of the following questions will need to be answered
·         Is it a known and accepted problem/opportunity in their industry/business?
·         How easy would it be for us to sell and service to this sector/group?
·         Are they located either physically or on line in proximity for us to establish and maintain a relationship?
·         Would they do business with an organisation such as ours? (Size, Location, Reputation, Language, Culture, Technology)
·         Are there barriers to entry Regulatory, Financial, Political etc.?
·         Are they known for being early adopters or laggards?
·         Have we previous relationships directly or through a friend/partner?
·         Does their buying process, match how we will be selling initially (EG do you have to be on an approved vendor list)?
·         Does our product or service have any dependencies from the client’s perspective? (perhaps they must have a specific technology platform, or business model/process, perhaps there are additional purchases required to enable our product or services)
Before we define a sweet-spot customer, we will need to take feasibility information and the answers to some of the questions above and look at it in terms of a market (initial)
It’s useful to have some focused segmentation for the beach head, this will allow focus and refining propositions:-
1.       Geography   As a general rule for many organisations the Beach Head geography should be the home market (Depending on the country size this may be more refined around a state, region, county or city). Launching a new product or service usually requires face to face confidence and relationship building. It’s likely the promoters may have stronger networks and knowledge of the local home market. The cost of access and travel will be minimised so sales productivity can be optimised. The buyer will perceive less risk of dealing with a local supplier. You will not have to deal with different business cultures.
2.       Industry Vertical As a general rule the buyers will value a focus and knowledge of their business, processes and markets and place more value of products or services designed for them specifically. Sizing, targeting and positioning can be specifically refined to draw out your product or service differentiation.
3.       Buyer/Customer profiles The characteristics of likely early adopters of a new supplier/product or service can be defined and there can be a focus. For example Tier 2 organisations in chosen sector(s), e.g. Financial Services or Telco’s as examples may be smaller more flexible, more entrepreneurial challengers in their business sector and therefore seeking more innovative products and services to capture market share in their business.
4.       Technology/Process The product or service you are promoting may have multiple applications for different business, business processes, and/or different technology environments. Initial minimisation of the variety in a beach head again will reduce overhead and allow for focus on the low hanging fruit.
Concluding a Beach-Head strategy and plan
Having completed the analysis then it is essential to document and communicate the Beach Head strategy; this will allow focus across the business and enhanced productivity and decision making.
·         State clearly the target market segments
·         State clearly the target client profile
·         State clearly the value proposition for the Beach Head
·         Start building the CRM database within the Beach Head
·         Get talking to these clients
·         Identify a small number, you are willing to invest in as Beta clients on the basis they will become a reference site and case study (Generally don’t give anything for free, and have a clear upgrade plan so that these clients are commercially viable in the long term)
Beyond the Beach-Head
Firstly there is usually a lot of learning when executing a beach-head strategy, do not be afraid to adapt as you learn in order that the beach-head can achieve its objectives. It’s also important that everyone understands it could fail, if it shows signs of failing , carry out an objective review , because perhaps it’s not failing but actually confirming a result, e.g. there is not a market for the product or service, or there may be a market but not at a viable price..etc.
Finally and most importantly, you must have a plan to scale as you secure success in the beach head, tactics may differ such as launch another beach-head, form a pincher movement, flood the market, think military how will we conquer our chosen market. (Perhaps the subject of a follow on opinion piece)
International & Virtual Beach-Heads
Though I have largely covered the area I intended, I want to acknowledge here that some products and services may have their potential either on line or Internationally. The key is still to create a focused Beach Head in order that initial goals can be secured. For example in a cloud based market, the service such as a SaaS service can be independent of customer location or vertical etc. However in order to secure initial objectives and focus the organisation, a beach-head strategy is still of very high value. Perhaps for example the on line integrated e-marketing plan will require SEO, partner web sites, social media forums, trade portals etc. , so having a clear plan and focus will enable higher chances of success.


Monday 16 May 2011

Funding Early Stage Stary Up Companies

Funding Start up Enterprises in Ireland
I have been amazed over the years at the number of entrepreneurs I have met up with, that have poor awareness of the funding process and sources of funds available at the various stages of evolution of a new business, so I thought I would put some information out into the entrepreneurial world. In addition, I have seen entrepreneurs enter into the wrong stage of the funding cycle all too often leading to delays and frustration for all parties. This is not meant to be the be-all and end-all of funding but just a few guiding points for anyone that may be interested.
Despite the economic situation there is a healthy level of entrepreneurial activity on our Island, which will play a significant role in our recovery, and job and wealth creation. My disclaimer is that you should always seek professional advice when seeking funds or making investments.
Whether a promoter or an investor, there are some key questions that will regularly arise at every stage of the start-up and funding maturity cycle, these are:-
1.       The emotional engagement, this is about the individual promoter(s), the successful ones are competent & passionate about their idea, opportunity, product and/or service. Is this passion and emotion underpinned by some rational and facts?
2.       Is there a defined problem or clear opportunity that the new entity is going to address and does the proposed offering address the defined area in manner customers will pay to have the product or service?
3.       Have we confirmed that there are sufficient customers (Market), Groups of customers (Segments) to allow current and future competitors have a chance of achieving a share that delivers acceptable profits to stakeholders?
4.       Who is the competition?  How are we different? Can we use our uniqueness to focus on a real addressable Market where we have advantage?
5.       Have we a beach head market defined and analyses that are easy to build initial customer’s sales, usually the home/local market as regards geography and/or specific vertical or technology sub sets. Is there life after the beach head?
6.       Came we explain/demonstrate our business model, how we make money globally and at a unit level.
The first stage of investment of resources in a new enterprise (Up to circa €100k)
1.       Type 1 – Start-Up, It is normal that the promoter(s) will spend time researching their business idea, and sometimes they may even spend some of their own money before they make their first decision which is to commit to doing something active to start the new enterprise. Even at this stage there can be supports available mainly in the form of feasibility study grants from Enterprise Boards, Enterprise Ireland and InvestNI. It is in everyone’s interests that a solid feasibility study is completed to start to determine the viability of the idea.
2.       Type 2 -Start Up, Normally has its birth in academia, perhaps through primary research or research for a thesis. All our main universities now have research and incubation centres and Science foundation Ireland working with the IDA and EI have various funding programs to support these initiatives.
3.       Type 3 – Start Ups, I call these the spin outs, where in fact within the life cycle some end customer has in fact paid for the initial development indirectly. As an example a solutions or services business is paid by a client to design, build and deliver some solution and it is determined that this solution can be resold to other clients. Naturally IPR ownership considerations must be taken into account as should the suitability of the architecture and design to service a market rather than a client.
At this stage often friends and family have demonstrated some support and generosity with their time or cash to support the promoter.
Through this stage as progress is being made some meat has been put on the bone, perhaps some market research completed , even the framework for a product or service defined or sketched out.
Depending on the promoter’s approach, skill and experience there are supports available through state-sponsored programs, there are a range of programs which usually provide incubation centre facilities, training, coaching and mentoring, professional services support. There is a broad range of these programs and different types of cash and professional support; sometimes through subsidies sometimes the entity providing the support requires some small equity in the promoters venture in return for their support, which also demonstrates their willingness to share risk. Some examples are:-
·         Business innovation centres such as Dublin Business Innovation Centre (DBIC)
·         University Enterprise centres such as
o   Nova in UCD
o   Invent in DCU
·         DCU Ryan academy programs – propeller/techstart
·         County enterprise board centres
Seed Funding (Up to circa €500k)
Though still in the early stages, the promoter would normally have a clearer proposition for the market, perhaps a working proof of concept tested with prospective target friendly customers.  The promoter at this stage usually is seeking funding to resource completion of product or service development; at least the initial market release and initial sales to the beach head target market. This is still a reasonably high risk phase, where neither the product, service, market or promoter are proven, so the sources of funding as specific.
Government supports through mainly EI and IDA include
·         High Potential Start Up program and related financial supports such as matching funding, in the form of a convertible loan note.
·         Government supported R & D vouchers and grants.
·         Government funded seed funds administered by banks and professional investment firms e.g. Dublin Seed Capital Fund
Business Angels, high net worth individuals who are seeking investments in early stage companies, or syndicates of angel investors who share the risk and bring greater expertise to support their investments. There are several Angel types:-
·         Full added value investors who want to become actively involved on a day-to-day basis providing their skills and experience to achieve the goals of the business coupled with a financial investment.
·         Partial added value investors, similar to above but more advice and support, also perhaps taking on specific tasks or projects, but not engaging full time.
·         Board engagement investors who will aid in the strategy and governance of the company but keep an arm’s length from the day-to-day operations.
·         Arm’s length investors, who want to invest money but do not want any active engagement apart from getting regular updates on progress.
IBAN & HALO entities exist across the country and provide structured processes for introducing promoters to business angels and angel syndicates.
Some of the venture capital firms will invest at this stage and specialise in early stage companies, often they may have an administration role for government supplied seed capital. Crescent Capital in NI is an example and in ROI Kernel and Enterprise Equity are examples. As is the Dublin Seed Capital Fund.
Scaling Early Stage and Growth Funding (Funding greater than circa 500k)
This is the stage normally where the promoter has paying clients, revenue streams and has proven the model and now needs to scale the business perhaps refining the product or service or follow-on product development, but more importantly ramping sales, customer acquisition and market share.
The largest source of funding at present in Ireland is via the VCs who have the access to funds whether private or public, the skills and processes, to support the entity scaling.
Often at this stage a source of funding may also be a strategic partner, supplier or customer, a stakeholder who has seen the value proposition and has a strategic interest in its success.

Useful Links
http://www.investni.com/index.htm
http://www.isin.ie/