When Your Customers Want One Thing — And Your Investors Want Another
Balancing competing demands is just part of being an entrepreneur. Ellie Cachette shares advice for when your customers square off against your investors.
Of all the balancing acts an entrepreneur faces, one of the trickiest is trying to keep investors and customers happy at the same time.
In theory, investors should love entrepreneurs who are obsessed with customer satisfaction. For two reasons: First, any entrepreneur would be hard-pressed to build a great company if all their customers are disgruntled. And second, investors don’t want to be pouring money into your venture forever. So you’d think they’d be eager for you to do anything possible to bring in cash from actual, paying, customers. In some ways, they are. In other respects, you can probably expect a bit of tension. And certain circumstances seem to breed differences. Here are a few, and some tips for each situation:
A high barrier to entry or a long sales cycle While you are chipping away, trying to leverage a longstanding relationship or doing small tests in order to win over a large client, capital hungry investors can get nervous. They’ll put pressure on you to raise more money to make sure their original investment is safe and you do not go out of business.
- Do keep potential investors up-to-date on your progress. But focus a good part of your energy toward getting new leads in the door, knowing there will be a long sales cycle.
- Don’t chase the money. In theory, raising a chunk of cash while closing a large client sounds like a great idea, especially if having extra capital will make a customer more likely to sign on. In reality, most investors will want to see that you’ve closed the customer before they invest. Trying to close the funding and the customer at the same time can be a cat and mouse game.
A frothy market Investors notice when obscure companies get huge investments. Some investors will become a bit paranoid, wondering if your business model will actually work. That leads to pressure — pressure to bring in revenues in any way possible.
- Do try to prove that people will pay for your product or service, while staying true to your plan. The most useful thing you can do here is to figure out how to charge customers while you’re in the development stage. That’ll give you the metrics and data you need to support your plan, and show how it will lead to a strong bottom line.
- Don’t sacrifice long-term product development or your business model for quick, small, revenue gains. Chasing revenue can easily distract from things that are more important for an early stage company: staying true to your vision, and meeting your milestones so you can raise the next round. Plus, you run the risk of setting expectations of being a revenue producer when you are not really ready yet.
Lots of customer feedback. Of course you need to know how people are using your product or service, and which features are most helpful. But which ideas do you listen to? You can’t be all things to all people.
- Do develop and watch your key metrics, and let them dictate how you respond to user demand. Knowing how users are already using your product, or not using it, will help you decide which intitiatives to pursue. That’ll help you pitch improvements in a language investors appreciate. For example: “Many users are requesting an easier check out. It will take two weeks to upgrade the checkout, which would increase sales by X dollars and delay our need to raise additional investments.”
- Don’t spend all your time with customers or users. If all you think about is what customers want, you’ll make yourself crazy trying to respond to their every whim. You don’t have the time or resources for that.
This type of reasoning adds value to customers, your company, and investors — making that tightrope walk just a little easier.
Ellie Cachette is the Managing Director at Cachette Capital Management, a firm which specializes in investing into venture capital funds. Their debut fund which launched in 2018 raised $1BN. Prior to fund management, Cachette was a founder and entrepreneur of several startups, completing Springboard Enterprises’ Media Tech program in 2012.You can find her on Twitter @ecachette.