Three Things That Will Kill an Early Deal for Startups

Guest post by Stephen Mooney, CEO of Synoptica 

In my career as an entrepreneur, I’ve had the opportunity to close the first deal at three different startups. There is no better feeling than when a paying customer has validated your concept and recognized your product value. That first deal has the potential to springboard your company to the next 10 deals, which can then send your business scaling to the stratosphere. Within those first few deals lie the clues to a successful business or the pitfalls to your startup.

In my experience, the biggest killers to look for in early deals are:

• Customer Acquisition Cost: David Skok writes a good summary here about the need for a viable business model so I won’t dwell on it too much. If a customer is not profitable, they better have a good strategic reason.
• Target Fillers: Most good sales teams I’ve worked with have found a way to make their target one way or another. But if new clients don’t fit with the product or the value, they’re often expensive customers to deliver to and will leave you within three to six months.
• Chasing Shadows: There are many forces pushing you to chase revenue and for the most part, that’s good. But stick close to your value proposition.

In my first startup, our investors tried hard to push us from business intelligence to reporting because our first customers liked our reports—reports that were soon commoditized by competitors. In my second startup, we fell for the revenue trap of a larger customer demanding more and more consulting services—that is, big, un-scalable revenue that dried up when the customer hit a bump in the road. In both cases, these events nearly broke my company.

So how do you spot the clues and harness or mitigate them? In my experience, everything starts at the top of the funnel. Better targeting means better leads, and better leads mean better customers. In the past, the top of the funnel was too broad to efficiently spot the best leads. Sales and marketing teams turned to unreliable and outdated target lists and ‘kissed a lot of frogs.’ This created a multi-billion dollar industry in sales data, analytics and intelligence.

The advance of big data and artificial intelligence is the next chasm in sales performance. Through increased processing power and intelligent analysis, thousands of companies can be analyzed with the same degree of scrutiny that a human could do in a fraction of the time and cost. At my current startup Synoptica, we developed tools using Natural Language Processing to better categorize and profile our leads, eliminating useless and outdated data. We automate the way we previously carried out research online, to uncover the companies that will prove to be our best customers. For us, that means mid-size B2B software and IT companies with a lot of leads that are showing a propensity to scale. We create a score and rank these companies before we target them, which ultimately leads to more efficiency and lower churn.  For our customers, their needs are different, so the platform allows them to build their own scoring requirements.

To sum up, keep an eye on the proposals you’re sending and the customers you’re onboarding and don’t customize your product for the sake of one customer. Implement more rigor at the top of the funnel to spot the right targets and leads. It will shorten sales cycles and lower churn. And finally, if you really want to ensure your company is heading in the right direction, don’t be afraid to fire the customers who are wrong for your business.

Good selling!