Building Your Own Start-up Technology Company, Part 4
In: Columns > Innovating the Web Experience
Published on September 4, 2006
Living the dream
The final part of the series will review the foundational things that come with building a successful company; the things that need to be planned and executed well in order to achieve sustainable success.
In order to survive, you need to generate revenue, and the only way to generate revenue is to close sales. Many people are uncomfortable with the idea of having to sell, but you’re not going to make any money unless you’re bringing customers through your door. Earning a sale requires moving people through three different stages:
- Awareness: A potential customer first needs to know that your product, service, or company is available.
- Understanding: Second, they need to clearly understand your unique value proposition, and how it applies to their needs.
- Belief: Finally, you need to induce a belief that what you are offering is the correct investment of their resources.
Moving through each of these stages requires three basic, traditional sales methods: lead generation, courtship, and closing.
Sales begin with lead generation: identifying potential customers for the product or service you’re trying to sell. The goal is twofold: You want to raise general awareness of your brand in order to encourage customers to come to you, and you want to go to the market with targeted messaging to get customers who aren’t aware or connected to you.
For small and lightly funded companies, networking and viral marketing are the most cost-effective means to generate leads. Most of us who have developed a new product or company have ample personal and extended networks that can help us get the word out. In order to properly leverage these networks, we need to be thoughtful about our messaging and what we are trying to communicate. Be very systematic in how you approach your contacts, clearly spelling out why what you offer has value and suggesting some simple ways they can help get the word out.
In order to achieve viral effects, consider the practice of Web 2.0 software companies: along with clear-and-simple messaging, the best ones typically have an attractive and even fun package of goodies that creates interest and intrigue around their company and offering. IconBuffet’s Free Delivery program is a terrific example of generating buzz around a product, and leveraging your customers (and even potential customers) to push your company and message forward.
Targeted direct-mail marketing is another potential route to consider, although up-front printing and per-piece postage costs can pretty quickly make this an expensive proposition. Sending a small run of high-quality pieces to people whom you already know can provide a strong impression, communicating the quality and seriousness of what you are offering.
For those with more money or who need to generate a large number of leads quickly, consider using a public relations firm. The right public relations firm is worth its weight in gold, as they will not only help broadcast your message to large numbers of people in the appropriate industries or geographic areas, they also have strong networks within the news media—and with other clients—that can generate considerable unpaid press opportunities for you. The reason that many new businesspeople are showing up in major newspapers or trade publications is likely the legwork of their public relations firms. If you’re ready for the big time, this outlet can provide you with a lot of exposure. While the cost can vary wildly based on how much work they do for you, expect to spend in the neighborhood of a few thousand dollars a month for good, consistent support and coverage, or even up to $10,000 for a heavier, more short-term blitz. As with all marketing efforts, long-term success will be more the product of consistency over a long period of time than making a big splash.
Advertising is generally the most expensive way to generate leads, and most mass advertising is not worth the money—at least not for a small company. However, online advertising can provide some effective opportunities. Services such as Google AdWords provide you with a relatively high percentage of good, qualified leads that are very targeted to exactly what you are trying to sell. However, you probably need to be specific: The biggest and most general terms are now quite expensive. If you can get more specific than just web design, or even include a precise geographic location, you can both reduce your costs and increase the quality of the leads you earn.
Finally, there’s always cold calling. In this day and age, between the people that we know and the information publicly available on the internet, we can get in personal contact with just about anyone we really want, if we’re determined enough. For a software company, this might mean a key influencer in a specific industry; for a services company this might mean the VPs of product development at all of the companies in a particular vertical market. Most of us don’t like cold-calling, but if we can get over our fear or dislike of doing it, the results can be powerful and surprising.
If you’re lucky and persistent, you’ll be able to build a strong brand that leads potential clients right to your door. Until you’ve developed a critical mass of awareness, though, you’ll need to put a lot of effort into getting the word out there and letting people know that you exist, and have something compelling to offer. But raising awareness is simply the first step; no matter how you get leads, you need to convince them that you’re the right choice.
Successful sales has a lot in common with courtship: It’s one thing to turn someone’s head, but it’s quite another thing to start a relationship together. The space between the two is the courtship period, when you attempt to turn awareness of your company into a serious consideration of purchasing what you have to offer. There are four basic ways that this is accomplished:
- Personal communication: Particularly for service companies, courtship takes place in your personal conversations, interactions, and follow-thru. Clients want to feel important, and to be listened to. They want responsiveness and consistency. They want to come first, and know they can trust whom they’re dealing with. Each of these desires can be successfully met through attentive personal communication. Being proactive with good, solid communication can move you to the front of your potential customer’s short list, and it’s ultimately more powerful than anything else you can do.
- Marketing messages: Once people are aware of your company, they enter a phase where they decide whether to choose your products and services. Since you are just getting started, your website will probably provide most—if not all—of the information they use to make that decision. Make sure it’s well written. Take your time and be systematic about the content and design of your site, and in particular, your company’s About page. Make sure the things you are saying—and the way you are saying them—appeal to your customer’s needs. Position your company in a good light; make the prospect of buying what you have to offer very appealing.
- Products and services: It’s typically difficult for potential customers to truly evaluate your products and services until after they’ve decided to buy. Turn that to your advantage by using your product itself as a sales tool. Many online services and software companies offer functional versions of each of their products, enabling customers to sign up or download immediately and evaluate them, without requiring any money or actual purchase.
- Reputation: This is the fuzzy part of branding, the collective word-of-mouth feelings about your company and what you are offering. While much of this impact during courtship is entirely outside of your control, you can greatly increase the likelihood that your reputation is strong and that people are saying good things by making sure your current and past customers are happy and satisfied (we’ll talk about this more later in the article).
The final step in making a sale is closing it. It is relatively simple to create interest in your company and products but it’s quite another to get your customers to decide to spend their money with you. While the stereotype for closing is a high-pressure auto salesperson asking, “How can I get you into this car today?”, closing is actually far more nuanced than that, and not specifically tied to a face-to-face sale. Here are the key components to successfully turning your prospects into customers:
- Trust: If they don’t trust your company or product, people won’t buy. It’s that simple. Part of the close has to be reassurances—either overt or implied—that your offer is safe and honest.
- Likability: Prospects will rarely buy products from companies or people that they do not like. So it becomes important that you and your company are—or at least appear to be—likable.
- Degree of fulfillment: Prospects come to you with varying needs and/or desires that they expect to be fulfilled through making this purchase. Through the courtship period—but particularly at the point of decision when someone is going to buy or not buy—you need to communicate that this purchase will prove more fulfilling than other alternatives.
- Price: The price has to be right. Both an art and a science, pricing requires a clear understanding of your own value proposition, knowledge about what others in the market are charging for comparable stuff, and a sense for what people will actually pay you. Make sure not to assume that lower is better: people use price to help them gauge value, so sometimes having a higher price can lead to more sales. Pick a price that best represents your brand proposition.
- Terms: Tied into the question of price are questions of terms. Should you charge a subscription fee or a one-time purchase price? A fixed bid, or on the basis of time and materials? There aren’t absolute right or wrong answers to these questions, but if the terms you offer are not palatable to your potential customers, it could derail your efforts to finish the sale. Researching the terms other products in your space use (or flat-out asking your prospect what they’re most comfortable with) can help you get the terms right.
Sales (along with the next section, Service and Management) is a topic that lots of popular books are written about, and mastering its components is far beyond the bounds of this short series. That said, you need to learn about and understand things such as marketing, communication, negotiating, proposal writing, and closing the deal. Each of these is worthy of a masters-level course, and will need to be in the toolset of company principals.
#13. Service and management
The central theme of service and management is simple: Take care of your people. More than anything else, this is the area that truly determines your long-term business success. In order to survive and thrive, you must remain focused on your employees and customers. That focus requires a service-oriented approach, good interpersonal people skills, and an aptitude for organization and planning. Few people are good at all three.
These people areas are highly complex, and often very dependent on your specific company situation. While you should get a deeper source for more complete lessons on service and management, here are some key principles that, if you are able to follow them, will give you a strong framework to make people a major asset for your company:
- Do what’s right—not what is easy or nice. This applies to everything about your company, customers, and employees. It is often easier to let the bookkeeping slide for the month, or not press clients for payment, or not let a poor performer go. But decisions such as those, which are based on taking the less-demanding route, are never the right choices. You need to be strong, and stretch your comfort zone to do the right thing for your company’s future.
- Your employees come first. The customer is not always right. A successful company begins with the people who work for you. They are most important: Treat them that way.
- Your customers come second. OK, so your customers aren’t always right. But they are always important. So long as it is not unfair or unnecessarily taxing on your employees, you should do what you can to make your customers happy. The most important thing is simply to listen to them, and let them know they’ve been heard.
- Be proactive, not reactive. Don’t wait to hear complaints or get requests. Really go out of your way to take care of people and situations. This takes a little more work, but the effect that it has is big.
- Be organized. This is a really hard one for me: My mind is always in the big-picture problem-solving space, and I have a really hard time keeping little things organized. But strong organization is the backbone to healthy management: A fair number of people expect structure and order, and some modicum of that should be maintained.
- Pay attention. I mean, really pay attention. Care about the people who are important to your company. This is more than just valuing them or putting their interests in front of your own; it is about really paying attention to the little details of people’s lives, and caring about their success on a personal and professional level.
#14. Getting paid
Collecting your receivables is often much more difficult than new business owners might imagine. For software companies, piracy is widespread. Even for less-expensive software products and services, a disturbingly high number of people prefer to steal your offerings instead of paying for them. That means you need to take security, registration, and enforcement seriously from your earliest stages of product planning. Even large and well-established companies have trouble protecting their products. The problem will pinch even more for you in the early stages, because you rely on those initial dollars to get off the ground and either begin to pay yourself and employees, or start to climb out of debt and gain some autonomy from your backers.
Stealing technology is rampant in our industry. If your product idea features new technology or new uses of technology, talk with your attorney about filing patents. Someday this could make—or save—you millions of dollars. The secret to protecting your rights and intellectual property is through diligent planning and investing into the programming or legal considerations, just as you are in the functionality of the product itself.
On the design-services side, owning your own company introduces you to the vagaries of the accounts-receivable departments at client companies. One of the dirty secrets of large companies is that they string their vendors (which is you) out as long as they possibly can, paying them thirty, sixty, or even ninety days after the invoice is submitted. Larger companies sometimes take even longer.
One method to gain some leverage is to write into your client agreements that payment is due by a certain time, or else there will be an additional late fee applied. However, it is almost impossible to enforce this with large client companies, not to mention the fact that it is not good for a healthy client relationship if you are forever complaining about not getting paid. Typically, the client is helplessly caught in the middle, as the slowdown on payment is part of corporate policy designed to maximize profits at the expense of the vendor. So, expect to never get paid more than thirty days after invoicing, assume payments will be more like sixty days after invoicing (obviously, in reality, this will vary by client) and do everything you can to invoice early and remind often, so you are not carrying the burden. Services such as Blinksale can help you manage and organize this important piece of your business infrastructure.
Make it happen
There has been a lot to digest in this series, and truth be told I’ve barely scratched the surface on much of this material. With luck, you haven’t been scared away from trying to build your own company once you see it all outlined like this. So, in order to wrap this up with some of the great things that come with running your own company, let me share a little bit about my experiences that make all of this worthwhile:
We spend a lot of time working with start-up technology companies. I mean a lot. So we’ve had the chance to see and work on a variety of pretty amazing projects. But what has really been fun is working with the people. The founders of these companies are so energized, so passionate, so driven. Having meetings in their living rooms or in coffee shops—because they can’t afford offices—the possibilities and potential seem limitless. Then working with them while they get their initial rounds of funding—or are even acquired by a major software company, as happened to one of our clients—is like riding a really fun roller coaster. And if we as the service provider are experiencing it that way, just imagine what it must be like for our client companies. One of our clients was purchased by an industry-leading dot-com company. Another received a ten million dollar round of funding, in part due to our product development work for them. You could start your own company to create a software product and have the same amazing experience.
And for people interested in the services side, consider our story: From the very first, we were fortunate enough to be bidding against some of the best-known digital product design companies in the world: Ideo, Frog, Razorfish, Cooper. It was exciting that clients were seeing us in that group and giving us a chance to compete, but we weren’t winning those contracts. At the same time, we were working on a variety of projects: Some were interesting and made us good money; others were difficult or boring or didn’t really pay well. But we were in business, and making a living, and getting a nice portfolio of work under our belt. Then, last fall, we went up against the big boys again for a major redesign of an enterprise software application. And this time we won. Let me tell you, the feeling of competing with and beating the oldest, most respected companies in our industry for a large contract is a unique thrill. All of the effort that went into getting to that point suddenly seems like nothing: another step in the master plan has been achieved. How sweet it is.
These are the sort of experiences out there, just waiting for you to seize. Hopefully these articles served to guide you, or inspire you, or help you. And if you have any specific questions or want some personal advice, I’m always happy to help. Just email me.
So if you are working too hard for other people in an unsatisfying environment, and you think you might have the moxie to start something for yourself, don’t wait: There has never been a better time to be in the software business.
Dirk Knemeyer is a Founding Principal of Involution Studios LLC, a digital innovation firm located in Silicon Valley and Boston. Dirk is responsible for managing the business and for providing design strategy, brand innovation, and training services to organizations around the world. Dirk is on the Board of Directors for the International Institute for Information Design (IIID) headquartered in Vienna, Austria, as well as the Board of Directors for the AIGA Center for Brand Experience, based in New York City. He is also a member of the Executive Council of the User Experience Network (UXnet). He has published more than 100 articles—many on the topic of design strategy—and regularly gives presentations all around the world.