Redefining the 80:20 for Startups

Most of us are aware of the Pareto Principle aka 80:20. It was put forth by Vilfredo Pareto, an Italian engineer, sociologist, economist, political scientist, and philosopher born during the mid 19th century. Legend has it that one day he noticed that 20% of the pea plants in his garden generated 80% of the healthy pea pods. This observation caused him to think about uneven distribution. He thought about wealth and discovered that 80% of the land in Italy was owned by just 20% of the population. He investigated different industries and found that 80% of production typically came from just 20% of the companies.

While fascinating as it is, personally I think that Pareto principle no longer applies as a way to understand wealth distribution. Right now, 0.7% of world population control 45.6% of its wealth.

Talk about wealth inequality!

Later Pareto principle was bastardized to explain the relationship of effort/result, attempts/ successes and anything that caught’s folks’ fancy.

However there is one area that the 80:20 could still apply and that relates to startups.

You see, a startup is always in the business of selling despite what their preferred industry vertical is. A startup should always be selling its product to their current and potential investors, customers, partners and any other stakeholder who chooses to listen to them. (If you’re not, what the hell are you doing?)

While this sounds too brash a statement, take a step back and really look at it. Traction and sales don’t come because you have a great product. Traction and sales come because you have a good customer+business development engine. In fact, I believe that 80% of all what a startup should be doing is customer+business development.

Now, I can’t put my finger to some point and say that ‘this is where customer development ends and business development starts’. As far as I’m concerned, both customer development and business development go hand in hand.

Let me reiterate. A startup should be highly concerned about both customer and business development.

According to Steve Blank who actually coined the term, customer development is the practice of gaining customer insights to generate, test, and optimize ideas for products and services through interviews and structured experiments. Customer development is used to help build products that customers want and avoid spending time and money on products customers don’t want. It can be used to identify problems and new startup ideas, to test ideas, and to optimize ideas and existing products. (Source)

Business development on the other hand — in broad strokes — is the activity of pursuing strategic opportunities for a particular business or organization, for example by cultivating partnerships or other commercial relationships, or identifying new markets for its products or services. (Source)

A startup should ideally be doing both these things concurrently.

Product development is obviously a large part of the success of a startup. But when you look at the grand scheme of things, it’s customer+business development that can make or break a startup.

Customer+Business Development within Sri Lankan startups

While the need of a startup is thus, Sri Lankan situation is far removed from this reality. Often, I come across startups with great products but their customer/business development work is non-existent. Some of these startups are exploring concepts like growth hacking. But then again, there seem to be no direction in all their efforts.

What the Sri Lankan Startups need to do for customer+Business Development?

Now yes, This bit above is a rant. But I’m not in the habit of ranting about things without trying to fix or giving out suggestions to fix things.

If you’re a part of a startup facing customer/business development issues, here’s what you can do.

  1. Understand your customers and the actual problems that they seek to solve using your product.
  2. Understand what other market and user segments are having this problem or similar problems.
  3. Understand where your customers are at. If they’re not on Facebook but are on Instagram, spend your marketing money there.
  4. Understand how important analytics is and always try to learn something out of what you do. (When it comes to growth hacking or marketing, always try to understand what caused what.)
  5. Understand what other startups, companies are aligned with what you do and try to strike up meaningful strategic relationships.
  6. Identify relevant stakeholders
  7. Understand how you can create value for the stakeholders you target.
  8. Create unique value propositions for these stakeholders. The value you create for each stakeholder category could be different.
  9. Research who your potential stakeholders are;
  • As groups of people (Say like Accountants, dentists, homemakers, single parents, etc.)
  • As individuals

10. Reach out to the folks you identified and strike up conversations+negotiations. Remember the value propositions you created at #7? Apply those.

11. Ideally, you should be talking to multiple parties (if available) from each stakeholder category. Like in sales, your prospects and closes will have a directly proportional relationship.

If you want some inspiration, read about how Spotify partnered with Facebook to grow their user base. (Source) But let me just summarize the whole deal below.

How Spotify grew after partnering with Facebook

So, coming back to the 80:20. Focus on customer+business development, like a lot.

Yes, Product development matters. But customer+business development matters more. You can have a shitty product. But if you’re on point with customer and business development, you can make things work.

Comments are appreciated. I would like to hear what you guys think.