OnStartups

Startup Diaries: Getting Your First Customer

Posted by Dharmesh Shah on June 14, 2006 4 Comments


I’ve had several requests since this blog started to write about more of my real-life experiences in startups.  So, this is the first in a series of articles taken from my own personal experience.  Most of these examples will come from my first startup, Pyramid Digital Solutions.   

Getting Your First Customer
 
For a software startup, few things are more exciting (and sometimes more difficult) than getting your first paying customer.  Many startups have the luxury of having created products that are mass-market and of possible interest to friends and family.  Unfortunately, Pyramid wasn’t so lucky.

At Pyramid, our initial target market consisted of very large financial services firms (mutual funds, banks and life insurance companies).  Our first product was a Windows, desktop-based data conversion tool that helped these institutions use business analysts to “migrate” data from one complicated, ugly, legacy system to another complicated, ugly, legacy system.  For those that can think back that far, it might be amusing to know that the first version of this product was actually a 16-bit Windows application.  (It was later converted to 32-bits, which we thought was the coolest thing).

In any case, given the very narrow market for this product, it was impossible to convince our friends and family to dish out the $5,000 that we were charging for a single-user license.  In fact, we couldn’t even explain it to most of them, let alone convince them to buy it.  So, we did not have the option of taking the easy way out and getting people we already knew to buy it.

After all was said and done, after about 3-4 months, we did indeed find our first customer, a small (these things are relative) bank out in Oklahoma.  As it turns out, they were a great first customer (in this regard, we did get lucky), because they actually had a need for the product, had a “lead user” (that remained a lead user for 8+ years) and were able to provide great feedback.

So, thinking back on this process of getting our first customer, here are my tips and advice for those working through this process now.  Note:  Your mileage may vary on some of this stuff if you’re selling games or relatively inexpensive consumer software.  But, some of the fundaments may still be useful.
  1. A Customer Is Someone Who Gives You Money:  Call me old-fashioned, but in my mind, in about 99% of the cases, a customer isn’t really a customer unless they are exchanging their money for your software.  So, despite the fact that it is tempting to find people that will try your software (which is a fine thing) and people that you can plan to monetize later (also a fine thing), in neither of those cases, have you really closed your first customer.  In order for them to be your first customer, they have to be a customer.  And for that, they have to pay you money.  In my case, I was too young and inexperienced (this was before the age of the dot-com boom) to even conceive of a scenario where I gave my software aware for free and convinced myself that I had a customer.  The thought never crossed my mind.

  1. Make Sure You Get A Smart User:  In many markets, it is actually possible to make a sale (that is get cash) and still not have a user for your software.  Though in this case, you arguably have a customer, you’re only getting partial credit.  The reason is that the most important function of the first customer, even beyond the cash that they pay you, is that they help you learn what it’s going to take to get another customer.  This usually comes in the form of constructive product feedback.

  1. Customize Intelligently:  As I’ve gotten older, I’ve gotten a little too clever for my own good.  I like to try and maximize profits as early in a startup’s history as possible, and since I’m generally creating software product companies (vs. service companies), this means trying to do the least amount of customizations possible.  The less labor, the more profits.  Pretty simple.  Though this is still pretty good advice, even better advice is to bend over backwards for that first customer.  Listen intently.  Offer to customize the product (intelligently and rationally).  In my opinion, this willingness to make the product deliver on 100% of a given prospect’s needs is the single largest influencing factor in the first sale.  I will posit to you that regardless of how crappy your product is, there is someone out there that can be convinced to buy it if you simply demonstrate the ability and willingness to make it do what they want.

  1. Support Before Referencing:  Often, it is tempting to leverage that first customer and use them as a reference to get more customers as soon as possible.  In fact, given that you might be afraid that your product really, really sucks, it’s even more tempting to get that reference while the first customer is still basking in the glow of their brilliant purchasing decision.  Don’t do this.  Wait till you’ve had a chance to get through the honeymoon period with this first client and had them face their first big issue.  Respond to this first big issue with guns a blazin’.  You should be defying the laws of time and space in responding to the first customer’s issues.  They should be wanting to tell their future grandkids about your stellar support.  Then, and only then, do you get bold enough to ask them to be a reference (and yes, you do have to ask them).

  1. Reward With Recognition:  Many startups try and reward the first customer with deep price discounts on the product.  In many cases (like ours), this is a mistake.  The reason is that this assumes that customers care more about price than other things – and this is not always true.  In our case, shedding 20% of the price would have saved them $1,000.  Candidly, they just didn’t care about that.  Instead, we showered the customer with genuine recognition.  We praised them at tradeshows for their “forward thinking” nature.  We helped them with issues that weren’t even related to our product.  We spent time and energy making them look good.  This kind of reward was much more important and relevant.  Chances are, we were not unique in our situation.  Think about what your customer might actually value.


Of course, none of the above really provides any guaranteed vehicle to actually get that elusive first customer.  Unfortunately, there is no generic advice I can provide on this front.  It’s very situation-specific.  One thing I will say is that you should avoid the “reality distortion” effect of taking the easy road and getting a customer that’s not really a customer.  Even if you’re doing this because you’re out raising venture capital, they’ll see right through it.  A real customer is a real customer.  Though other types of early relationships have value, there is no substitute.