The (Not So) Hidden Value of Customers
Time, not money, is the most scarce resource for an early-stage startup. Founders are constantly rethinking how best to allocate their time. But because money is critical to getting a company off the ground, finding investors often gets more attention than talking to potential customers. Securing funding, recruiting great people, and increasing market awareness about your company are critical, but ultimately a happy, growing customer base — and good unit economics — are what makes a business successful. It sounds obvious, but gaining a deep understanding of customers is the most essential and most often overlooked challenge for entrepreneurs. It feeds everything else, including making a convincing case to investors.
It’s important to have conviction around your product and broader vision, but that needs to be balanced with relevant, real information from the market (see our post on Agrilyst for a good example). We can’t tell you how many entrepreneurs we’ve worked with — including some of our own past startups — who have developed their entire product plan by sitting around the table with their team and speculating about what the market needs. People often point to Steve Jobs as someone who succeeded by ignoring customers and leading them to where “they really wanted to be” with his brilliance and conviction. But that’s a myth. Jobs and Apple were actually obsessed with the customer experience. He did say that you can’t simply ask customers what they want and expect a good answer. Instead, it’s about deeply understanding customer needs and aspirations and the existing options for addressing them and coming up with solutions that are simply better.
Customer discovery and development is both art and science. The science shows that the more customer touch points a startup has, the more likely it is to be successful. Companies that went through a National Science Foundation Innovation Corps accelerator program focused on customer development were almost five times more successful in fundraising compared to other NSF teams that did not. The art is how you go about and make use of your potential customer interactions. Promising entrepreneurs can easily go in the wrong direction if they focus too much on selling to customers without listening first. A new startup at its most basic is a hypothesis about a pain point or value proposition for a target audience. As lean startup pioneers Steve Blank and Eric Ries have evangelized, the key is to get out of the building, test, and iterate based on the data.
“Very few startups fail for lack of technology. They almost always fail for lack of customers. Yet surprisingly few companies take the basic step of attempting to learn about their customers (or potential customers) until it is too late. It’s just so easy to focus on product and technology instead.” — What is Customer Development
Listening, as opposed to selling, isn’t always natural or obvious for entrepreneurs, which is why SuperCollider has what we call a “Customer Lab” for the companies we invest in. It leverages our many years of experience cultivating customers and partners for innovative, resource-efficient products, services, and projects across industries. Our Customer Lab is both a philosophy and process that incorporates these key principles:
- Customers need to be your first priority (or at least tied with the quality of your team)
- Seek as many customer interactions as possible
- Follow human-centered design practices when developing your product
- Don’t ask leading questions, put your ego aside, avoid confirmation bias, be prepared to change your basic assumptions and pivot
In addition to instilling the development of good customer discovery habits in the companies we work with, we also actively support the customer development process. Where appropriate, we make targeted introductions to innovators and C-level executives from the more than 500 large companies we’ve worked with in a broad cross-section of industries. Through reverse pitches, customer site visits, and other mechanisms, we create in-person opportunities for start-ups and corporate innovators to connect in ways the are more creative, open, and mutually beneficial. But we can’t actually sell our portfolio companies’ wares and don’t want to. Rather, we work to empower entrepreneurs to do the heavy lifting with confidence, purpose, and discipline. And of course, we are always listening to entrepreneurs — our customers — to learn how to do this better.
Because we’re focused on investing in early-stage Cleanweb companies, we expect many startups to come to us having had relatively few customers interactions. Through the Customer Lab, our goal is to provide them with a head start on customer discovery and development so they can demonstrate product/market fit faster and more efficiently. This helps them, but it also helps us. For if they can show real customer interest in their offering, it is far more likely that we and other investors will fund the next round. And that is why understanding your customers is the best way to sell to your investors.
