OnStartups

Marketing Tips For The Technically Gifted: The Power Of Customer Self-Selection

Posted by Dharmesh Shah on May 30, 2006 6 Comments


Given the popularity of a prior article on sales tips for the technically gifted, I thought I’d take a crack at some thoughts on marketing.  Once again, it is important to remember that my background is primarily technology (I’ve been writing code for most of my professional career), but have had to learn about marketing “on the fly” in my role as founder/CEO for a few software startups.  Enough with the disclaimers, on with the article.
 
Pop quiz #1:  Would you rather have a prospect list with 1,000 people on it or 5,000 people on it?
 
This one’s easy, it depends on the “quality” of the leads in the lists.  It’s highly possible that the 1,000 person list has better quality leads.
 
Pop quiz #2:  Would you rather have a 10,000 person lead-list that you know has 100 “really good customers” in it or a 50,000 person lead-list that has 200 “really good customers” in it?
 
From a startup’s perspective, the answer to this one is slightly more subtle.  It depends on the cost of finding the good customers (and eliminating the bad customers) from the list.  By “bad customers”, I mean those that are inappropriate for your product offering, not that they’re bad businesses or that their employees steal candy from children or anything. 
 
There is a school of thought within business that “You should be picking your customers, not the other way around”.  I mostly agree with this sentiment.  As a startup, it’s important to decide who you want your customers to be.  Few things in startup-land make things more miserable than when you get a bunch of “wrong” customers early on.
 
However, in practice, most of the time, you really don’t get to pick your customers.  Sure, you can terminate contracts and “fire” customers, but few startups have the gumption to do this in the early days.  And, based on how “connected” these customers are, you may be shooting yourself in the foot (like offending someone that writes an immensely popular blog about your particular product segment).  So, startups have to be careful.  Just like it’s hard to fire employees that are not working out, it’s even harder to fire customers
 
The best you can do is to structure your offering so that it is more likely to appeal to certain types of customers and less likely to appeal to others.  In fact, one of the best ways to get the right types of customers for your startup is to focus some attention on facilitating the process whereby they “self-select”.  This power of customer self-selection is the topic of this article.  It addresses to some degree the effect in “Pop Quiz #2” by making it easier to find the customers you want from the larger pool that’s out there.
 
One of the most common ways to define who you want your customers to be is with price.  By positioning your product at a certain price-level, you force customers to “self-select in” or “self-select out”.  [Note:  When I use the words price and position , I’m not using it in an MBA school, “4 Ps of marketing” sense.  If I do, it’s purely by accident].
 
For example, if you offer your shiny new RSS reader software for $1,499 a user, chances are only a certain kind of customer is going to be interested enough to even consider your product.  This is not necessarily a bad thing.  Basically, you are sending a message to your potential customers that this not just any RSS reader.  It’s special.  (Hypothetically, it could be an RSS reader that incorporates a rules engine and domain-specific scripting language that allows certain intelligent actions to be taken, emails to be sent, inventories to be stocked, prices to be optimized, etc. based on an incoming RSS feed).  So, your mainstream RSS readers that are out searching for a free or near-free RSS reader will quickly know that the product you are offering is not for them.  
 
So as a startup, here are the various decisions you have to make in order to figure out how to get the “right” kinds of customers.  Note that this is by no means a comprehensive list and nor is this an academic study (just ways I’ve found useful to think about these things):
 
  1. Low vs. High Price:  This is obvious.  Certain types customers are seeking free or near-free and others aren’t.
  1. Formal vs. Informal:  Is the “style” of your startup formal or informal?  What tone does the website and other marketing stuff take?  For example, if you were picking a lawyer, some people want an “informal” one that will meet at the local starbucks to strategize about VC term sheets.  Others want to show-off the breadth of their offering and the expansiveness of their office.  Neither is good or bad, different customers want different things.
  1. Product vs. Solution:  Are you simply selling a product (offered hosted or as a download or whatever) or is it more of a “solution” that involves some hand-holding, custom implementation and other services.  Certain customers are “do it yourselfers” and others want to buy services.
  1. Early vs. Late Adopters:  Certain types of customers want to play with early technology in the hopes of gaining competitive advantage (or just for fun).  Others like to wait until things are more stable.
I find it helpful to try and define who I think the “right” customers would be based on the above (and many more) attributes.  I then try to embody these attributes in the offering in the hopes that those customers that wouldn’t be a good “fit” simply “ move along”.  This saves them and me time and energy.  So, instead of me having to be insightful and intuitive in pursuing the “right” customers, the right customers (ideally) just “self-select”.
 
Here’s a quick summary of what kinds of customers I want to “self-select” for my latest startup (http://www.hubspot.com).  Though this could easily be considered a “plug” for my new company, it’s intended more as a form of illustration.  Having said that, if the following description fits you, then drop me an email.  You’re just self-selected.  J 

 
HubSpot Customer Profile:  You are the owner or partner in a small (less than 25 employees) professional firm that provides services like consulting, IT or strategic advice.  The word “firm” describes your organization better than “company”.  You have at least one other partner in the firm, and a few other staff members.  You don’t have a full-time IT person, and manage most of your business using Excel and email.  You are tech savvy enough, have a broadband connection at home and at the office.  You own a Thinkpad or the latest Powerbook.  You’ve read “Getting Things Done” and like to be considered an expert in your field.  You like to read blogs and have considered starting one someday yourself.  You’re open to looking at new technology that can help you run your business better and bring more value to your clients.  You like working with small firms because it gives you access to smart people that are passionate about what they do (much like you are about your own business).   


You get the point…
 
So, I think it might be helpful to write something similar for your own startup and see what comes out.  Do some soul-searching and really figure out what kinds of customers you want.  Then, start implementing simple ways to get the message out there.  The results will surprise you (in a positive way).
 
Summary of my point:  For a startup, being able to efficiently manage leads and find the “right” customers in the large masses of potential customers is a key advantage.  You can either do this before the fact (in terms of making it easy for customers to self-select in or out) or after the fact by having to reward the good customers and fire the bad ones.  Where possible, I’d rather focus on the former.  It’s much less painful.