On Hiring and Firing Customers in SaaS

At seed-stage, you don’t have many customers. You’re trying to get whoever comes into the front door. Thus, it might sound crazy to “reject” or “fire” some potential customers …

But at this early stage, it’s very important to find the “right” customers for you.

You want somebody who is aligned with your priorities in the short term.

About this series
This series of articles are drafted from our experience at Point Nine Capital on the top priorities for early-stage SaaS companies. Note that though more relevant for startups who focus on SMBs first and then go upmarket, the priorities are general enough to apply to most SaaS companies.

Please, welcome early adopters on stage!

Early adopters check most the of following characteristics:

They are excited about what you’re building

  • They will share good feedback with you often.
  • They will become ambassadors of your product.
  • They will bring you referrals.
  • They will help you with business cases.
  • They don’t complain when you put their logo on your home page, etc.

They are sympathetic

  • They understand that you’re a startup — bugs happen, mistakes happen.
  • They don’t expect you to live only to please them.
  • They understand that you will build features that are aligned with your vision. Even if that means that their requests aren’t always your top priority.

They want you to succeed

  • They don’t want everything for free (even willing to pay for pilots).
  • The sales cycles are “reasonably short”.
  • They guide you through their internal processes.

You can see why early adopters are a gem!

And what’s more important, they actually exist. It’s quite hard to find them, but if you find one, keep it as a treasure.

Usually, you can find people who behave like early adopters among the people who trust you — your network, your business angels and investors and their portfolios, companies and alumni in your same incubator/accelerator, etc.

Once you run out of contacts through that, luckily, there are some places like Product Hunt or BetaList where early adopters like to hang around.

What’s even more important: make it a personal thing between you and them to succeed. With a handful of those customers you will iterate faster, which is key to find product market fit sooner.

It’s quite common that startups sell to other startups as early adopters.

This, in principle, is great because startups are early adopters by definition. But:

  1. Companies at seed stage are cash poor. There is a low chance for you to get a proper business there — they will churn, look for discounts, etc… Skip that!
  2. Instead, it’s better if you can attract startups that are one stage further ahead than you. If you’re at seed, try to get series A/B/C companies as customers.

In general, there are some other good principles that can help you hire or fire customers:

Hire diversity of customers — or not, but choose!

At this early stage, pleasing tech companies can be enough to get decent traction. In most cases, with that traction you can raise funding and then expand into more use cases.

The smaller the niche you focus on initially, the easier it becomes to please them. But that comes with the risk of your market perceived as a niche.

There’s two main ways you can expand your market:

  1. You can try to go up-market and sell to bigger customers
  2. You can go horizontally and sell to businesses of a similar size in other industries.
At seed stage, in my limited experience, doing more than 1 shift at a time tends to be tricky

If your business and industry allows it, every time you close a customer, try to look for a bigger one (x2). If you can’t serve them yet, learn what it would take to get them onboard. Going across industries tends to be harder than going upmarket — even if both things are really hard!

One imaginary example of iterations for a beautiful helpdesk SaaS company :)

Once you get a handful of customer in the same industry, try to repeat the trick in different industries. Even if today there’s no real chances of winning customers there, try to speak with them and understand their needs.

At this early stage, thinking about pleasing one kind of customer at a time brings great benefits! It will clear your vision, therefore it will be a lot easier to prioritize your roadmap, your sales, your customer success, etc.

Hiring customers for consulting — one path to scale

Many founders don’t want to do consulting to customers because they think it won’t scale. Yes, consulting business are known for that.

But, if you’re not deeply familiar with the problem you’re solving, consulting can be a good hack.

You can build your product by doing consulting at the office of your customers. You will be getting feedback all the time and you will see their willingness to pay first hand. This is basically another way of putting: do things that don’t scale.

Fire on-premise customers — It is just an excuse…

This is a common one: a large-ish company wants your product, but only if you go on-premise. “Because they don’t trust the cloud” or “You’re too small and can die” or whatever other reason.

There several reasons why you shouldn’t go on-premise so early, among others:

  1. Lost visibility: by going on-premise, you will lose visibility on how they use your product. At this early stage, those metrics are key to run experiments and see what works, what doesn’t, and keep iterating.
  2. Burden: you will need to provide a lot more support if you go on-premise. You will take care of installation, maintenance, upgrades, etc. It will overkill you!
  3. Lost opportunity: at this early stage of your company, you don’t know the real value of your product yet. Going on-premise that early, it’s almost sure that you’re leaving big money on the table.
  4. Setting precedent: you might think that you will do it only once. But in reality, if there’s a customer on-premise, there’s pretty high chances that the other ones that that customer will recommend, will also want to go on-premise (with all the previous issues…)

For your comfort: we have seen several times that the that “customer who only wanted on-premise” becomes a SaaS customer.

If you solve a real problem for them, they will take “the risk” of going cloud. If you don’t, then they will keep finding excuses to avoid you and on-premise is a pretty comfortable one.

Fire “awesome” non-paying startups

Building a startup is something f**king hard. Founders know that and they try to help each other. But, unfortunately, I’ve seen often that this turns into startups not paying for other startups’ products.

Let’s be honest, if your “startup customers” don’t pay for your product it’s probably because the pain point is not big enough for them. If it’s not relevant, then it’s only vanity and it won’t help you. I’ve seen many early stage startups paying big bills to New Relic. Why do they pay to New Relic and not to you?

Thus, if you have users who don’t pay for your product, make sure you have a great explanation on why that is. If a “startup customer” is not using your product enough, not providing useful feedback or not bringing good referrals, those might be good reasons to fire them.

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In case you missed the previous ones:
1. Setting the Right Goals
2. Having the Right Infrastructure & Monitoring in Place
3.
Get Your Finance Plan Right
4.
The Right Team & Roles
5.
Invest in Sales & Marketing
6.
DOs and DONTs for SaaS Pricing