The most important early customers for your startup usually turn out to be quite different from who you think they’re going to be.
When I was at Zilog, the Z8000 peripheral chips included the new “Serial Communications Controller” (SCC). As the (very junior) product marketing manager, I got a call from our local salesman that someone at Apple wanted more technical information than just the spec sheets about our new (not yet shipping) chip. I vividly remember the sales guy saying, “It’s only some kid in field service. I’m too busy so why don’t you drive over there and talk to him.” (My guess is that our salesman was busy trying to sell into the “official” projects of Apple — the Lisa and the Apple III.)
Zilog was also in Cupertino near Apple, and I remember driving to a small non-descript Apple building at the intersection of Stevens Creek and Sunnyvale/Saratoga. I had a pleasant meeting and was as convincing as a marketing type could be to a very earnest and quirky field service guy, mostly promising the moon for a versatile but then very buggy piece of silicon. We talked about some simple design rules and I remember him thanking me for coming, saying we were the only chip company who cared enough to call on him (little did he know.)
I thought nothing about the meeting until years later. Long gone from Zilog I saw the picture of the original Macintosh design team. The field service guy I had sold the chip to was Burrell Smith who had designed the Mac hardware.
The SCC had been designed into the Mac and became the hardware that drove all the serial communications as well as the AppleTalk network that allowed Macs to share printers and files.
Some sales guy who was too busy to take the meeting was probably retired in Maui on the commissions.
For years I thought this “million unit chip sale by accident” was a “one-off” funny story. That is until I saw that in startup after startup customers come from places you don’t plan on.
Unfortunately most startups learn this by going through the “Fire the first Sales VP” drill: You start your company with a list of potential customers reading like a “who’s who” of whatever vertical market you’re in (or the Fortune 1000 list.) Your board nods sagely at your target customer list. A year goes by, you miss your revenue plan, and you’ve burned through your first VP of Sales. What happened?
What happened was that you didn’t understand what “type of startup” you were and consequently you never had a chance to tailor your sales strategy to your “Market Type.” Most startups tend to think they are selling into an Existing market – a market exists and your company has a faster and better product. If that’s you, by all means hire a VP of Sales with a great rolodex and call on established mainstream companies – and ignore the rest of this column.
But most startups aren’t in existing markets. Some are resegmenting an existing market–directed at a niche that an incumbent isn’t satisfying (like Dell and Compaq when they were startups) or providing a low cost alternative to an existing supplier (like Southwest Airlines when it first started.) And other startups are in a New Market – creating a market from scratch (like Apple with the iPhone, or iPod/iTunes.)
(“Market Type” radically changes how you sell and market at each step in Customer Development. It’s one of the subtle distinctions that at times gets lost in the process. I cover this in the Four Steps to the Epiphany.)
If you’re resegmenting an existing market or creating a new market, the odds are low that your target list of market leaders will become your first customers. In fact having any large company buy from you will be difficult unless you know how to recognize the five signs you can get a large company to buy from a startup:
- They have a problem
- They know they have a problem
- They’ve been actively looking for a solution
- They tried to solve the problem with piece parts or other vendors
- They have or can acquire a budget to pay for your solution
I advise startups to first go after the companies that aren’t the market leaders in their industries, but are fighting hard to get there. (They usually fit the checklist above.) Then find the early adopter/internal evangelist inside that company who wants to gain a competitive advantage. These companies will look at innovative startups to help them gain market share from the incumbent.
The other place for a startup to go is the nooks and crannies of a market leader. Look for some “skunk works” project where the product developers are actively seeking alternatives to their own engineering organization.
In Apple’s case Burrell Smith was designing a computer in a skunk works unbeknownst to the rest of Apple’s engineering. He was looking for a communications chip that could cut parts cost to build an innovative new type of computer – which turned out to be the Mac.