Getting your first Customers (Don’t give it for free)
I learned early in my career that nothing comes for free, and early stage companies need to keep that in the back of their mind as they approach initial target clients. Stakeholders, whether they be shareholders or promoters , knowing the importance of getting the first user of their product/service and early customers, often don’t think through the consequences of giving away their product or service at deep discounts or for free. In addition new on-line businesses often have a freemium model to get users and potential clients using a basic level of their on-line solution, with a view that they will buy the premium offering once they get hooked on the service. I am not suggesting that these approaches are wrong, what I have observed is they are not thought through, and thus ultimately often do not deliver the expected benefits. This opinion piece is intended to provide a few pointers for readers as to how to secure the target value intended, by reducing the price to early customers. Some considerations are as follows:-
Proof of Concepts & Pilots
Conversion to paying customers
Pricing is a subject of a separate opinion piece, so there is an assumption here that the research has been done to design your pricing model. You made need to test pricing in the market, however don’t mix this exercise up with securing early customers. I have often seen organisations set their pricing based on what they can get from an early customer, or worse have a different price for every customer even though the value proposition is fundamentally the same. That is not to say pricing may differ depending on the product/service or specific sector.
There is an inherent value in your product or service, the value will normally be reflected in your price, but for some organisations it may be a social value in the broadest terms (NGO, Public Sector, and Association). I am largely concentrating on commercial organisations, however the principals apply generally. So right from the start of our organisation engaging with potential clients we should have a trading hat on. What does that mean? It means as we reduce the price for our product/service proposition, with the objective of securing early customers, we get something in return. What we get in return may differ from organisation to organisation, examples:-
· Subject to the customer achieving an objective, they would move closer to the target market price at a future date.
· The customer would provide data and information to your organisation to help inform you on the product/service performance or opportunity for improvement.
· The customer would act as a reference
Similar thinking can apply to the on-line e-business model also.
I recommend a simple contract/agreement in all circumstances so that the responsibilities of both parties are defined, deliverables and benefits defined, commercials are defined, IPR is protected, and a roadmap towards full commercial relationship with the early customer is outlined.
Alpha customers are customers who agree to engage with your organisation in the very early stages of the new product/service life cycle. They are important to your organisation because you can have real world customers inform your design process and validate any market assumptions. You are important to them because they feel they can influence your product/service to match their business needs and perhaps get early access to you product or service giving them some form of future competitive advantage. The trade with an alpha customer is largely information. Make sure processes are defined and documented agreement is in place.
When an organisation has a market ready product/service and before full market launch, it is good practice to trial the product or service with a small group of friendly customers. For the customer they get early access and additional support from your organisation, you get real world validation and potential early production reference clients. In trading with these clients you will give them advantageous commercial terms and additional supports, they will give you information, references etc . . . . It’s important that the agreement acknowledges that they are taking early releases of your product, which has been fully tested but may have teething problems and that additional supports and services are being provided should these issues arise. Warranties and liabilities will be waivered to some degree for a period. It’s important that your organisation does not see the primary objective of a Beta customer as testing of your product or service, what it is, is real world validation after testing. It’s also important the timeline and roadmap towards full commercial pricing and terms are outlined or you could have an un-profitable customer on your books for a life time.
Proof of concepts (POC)-(Pilots)
There are two types of POC which have a customer engagement. 1) Alpha or Design POC and 2) Beta or customer POC. The principals for both are very similar:-
· Objectives: The objective is to prove some concept/theory, so a clear set of qualitative and quantitative statements need to be made, so stakeholders can determine if the concept has been proved.
· Scope: The scope of a POC is limited usually in time, cost, and function which should again be clearly stated within the concept of the objectives.
· Assumptions & Conditions: These need to be defined in the context of the objectives and scope so assumptions can be validated and conditions can be controlled.
· Approach: Defines how the POC will be executed
· Deliverables: What are the tangible and intangible outcomes expected. What are the impacts and results we desire.
· Consequences: This is the most important component and the one most often omitted. What will happen if the concept is proved? Inconclusive ?, Unproved ?
Alpha POC: - Might be we have a preferred technology to be designed into our new product and two alternatives, working with supplier partner A, and customer partner B, we will build and test a subset of the product or service and the best outcome technology will be selected and designed into final product or service and the customer will agree to be a Beta client.
Beta/Customer POC: - The customer is procuring a product/service/solution they are unclear as to whether your solution is the best value proposition as compared with alternatives, and you agree to run a POC. If the POC is proven then the customer agrees to buy or include in a procurement process, or move to full list price. (If the POC is paid for or partially funded by the customer, agreement is needed on what happens to a POC IPR after the POC)
Conversion to Full paying Customer
If you have a free offering, or deep discount offering to secure clients/users, it’s essential to have processes, models and skills that convert what are effectively traditional sales leads and opportunities to full paying customers. Remember it’s just part of the customer acquisition and sales process at the start of the cycle, what we want to do is accelerate towards being a full paying customer. You are starting an engagement with a potential customer. Think of it as the courtship phase and consummation of the relationship is when the customer parts with money and you deliver your full product/service. Traditional selling models are well documented, however new e-business model require close attention, the term land grab is often used to maximise the number of on-line users, perhaps through giving entry level services free, however a strong structure/process is required to maximise the conversion rates to paying customers, and equally as important is to minimise churn, that is continue to ensure the customer is using and deriving value from being a registered, fee paying customer. Conversion techniques:
· Usability is the very first step in ensuring you capture new potential clients and start moving them towards fee paying customers. Regardless of the device they access from whether PC, Laptop or other mobile device such as a smartphone, make it attractive. Simple, intuitive, short cycle and logical to find, register and derive initial functional value from the e-service/product. Obviously make sure it’s visibly secure.
· Where am I?, Confirm at every key stage of the engagement process on line and by email/txt what progress has been made, what benefits can be derived, and what the next step for them is to derive additional value.
· Profile: Maintaining appropriate and compliant personal data monitoring records, profile how individuals and groups are using the on line service in order that future interactions can be customised for them to derive additional value and benefits and for you to secure additional revenues.
· Build a dialog: Start and maintain conversations with your users on topics they are interested in, offer advice and incentives so they can derive more value from being a registered user and customer.
· Create dependencies: In the customers engagement with the services/products deliver such value and emotional commitment that it makes it hard for them to leave, ideally it’s better for them to stay and develop using your online product/service versus the cost and disruption to move to a competing or alternative product or service.