Facing your Goliath

by stevew on February 5, 2010

Post image for Facing your Goliath

There have been some interesting developments in the week since my last post. About ten days ago I stumbled upon a need at one of the firms I worked with in the past. I decided it was worth exploring so I spent a few days and evenings (though not nights anymore – I’m not as young or crazy as I once was) building a prototype to demo to some people I knew at the company. (As it’s early days yet, I won’t say too much about the problem or the solution at this stage, although I’m absolutely committed to doing so at the earliest opportunity.)

I did the demo today. I put a lot of effort into the prototype, so I think the audience was reasonably impressed. We chatted some more about the problem and possible approaches to solving it, but we didn’t reach any real conclusion.

I’m not sure what I expected to happen next.

During my time at Reuters, I had the privilege to work with a few great salespeople and one guy I knew always took a filled out purchase order to every sales call, ready for the prospect to sign the moment the opportunity presented itself. This morning certainly wasn’t one of those moments. However, I did get the green light to do a bit more research by talking to other market participants about the idea’s viability and then to report back in a couple of weeks. This might not seem much, but given that there are other much more substantial players in the frame to provide a solution, I consider this a very positive outcome.

As anyone who has sold for a living knows, selling is a lot about handling objections. When you are starting out in a new business, the objections come thick and fast:

  • How can we possibly buy from one man in a garage?
  • If I buy from you, how do I convince my boss that I wasn’t being foolhardy?
  • How do we know that your little business will still be around in year’s time?
  • What will our customers think about us using such a small supplier?
  • … and so on.

(In fact, these are all variations on the well-known theme, “Nobody ever got fired for buying IBM“. )

In short… … why should we take you seriously?

In my first business, we attempted to handle these objections by pretending they weren’t true. The day a prospect visited as part of our first enterprise product sale, we persuaded a number of friends to sit at the normally empty desks in our office, to give the impression of being a more substantial firm than we really were. (I read somewhere that Charles Wang did the same for an IBM visit in his early days). I could do this again, but I’ve come to believe that in this situation, honesty really is the best policy.

The Flip-Side

In one of the great essays on his site, Paul Graham talks about the advantage that start-ups have. He proposes a notional productivity factor of 36 times the average corporate employee, based on:

  • Working twice as many hours a week with three times the focus (6x)
  • Eliminating the impact of the pointy-haired boss (2x)
  • Being smarter than the average job expects of you (3x)

(Thanks to Oli on the Answers.OnStartups.com forum for pointing this one out.)

Even allowing for the fact that I don’t anticipate working 80 hours a week (due to the aforementioned age considerations, and I doubt I’m truly 3 times smarter than average), the point is simply this: Small companies enjoy a significant advantage over average mid- to large-sized corporates. What does this mean then for prospective customers?

  • It should cost them less to get the same things done
  • They should get far more innovative solutions to their problems
  • They should get solutions faster, i.e., better time-to-market

It’s also worth pointing out some other factors that can influence buying decisions in favour of start-ups:

  • They generally have to deal with far fewer internal conflicts of interest (- with a larger supplier there is always a chance they will have their own product or service where their interests are not perfectly aligned with those of your prospect)
  • They have much lower overheads (fewer mouths to feed) so again total solution cost should be lower
  • They tend to have less stuff on the go at any one time, and can therefore give a project more individual attention and focus

The goal then is to get buyers’ eyes off the negatives and onto the positives. It obviously helps if you can show a prospect how you’ve saved an earlier customer money, improved their time-to-market or delivered a more innovative solution. (Sadly this isn’t an option open to me right now.) In this context, if you can afford to, it sometimes makes sound business sense in the early stages of a start-up to subsidise a piece of business, just to get a good reference customer onboard (although be wary of being sucked into a long-term subsidised relationship). Another approach is to identify and offer a capability/feature/service that it would be next to impossible for your larger competitors to provide (for example, because it stands outside their core business focus or is beyond their technical competence).

Strategy for Success

So having established that there are a lot of benefits in working with smaller companies, what about the obvious downsides? At the root of the objections listed above is the issue of risk; the unspoken question is what could go wrong here? This might mean personal impact (e.g., could a bad buying decision affect my future career prospects?) or it might mean corporate impact (e.g., if this doesn’t work out, where is that going to leave our business?). Here are a few things you can do to minimise these risks in the mind of the buyer:

  • If possible, target lower profile projects – attempting to provide a mission-critical solution without the required support infrastructure is a sure-fire way to lose plenty of hair (check out the About page if you don’t believe me…)
  • If the customer has in-house development skills, provide a source code licence as a matter of course
  • Enlist the support of other credible market participants – whether that is people that are well known in your industry, or even the buyer’s customers if you have such relationships – often you can find a hook to bring those kinds of people in, typically because they stand to benefit in some way (e.g., kudos, improved service, etc.) by your success
  • If you have other relationships within the buying organisation, leverage those. Obviously do so with extreme care – you don’t want to stamp on anyone’s toes, but clearly if more than one individual in the firm is bought in, then the decision will seem much less risky

This is none other than the archetypal David and Goliath story. One of the reasons for David’s success was that he wasn’t afraid, despite the towering stature and impressive track record of the giant. David’s nimbleness and single-mindedness meant he was able to take on the enemy and come out victorious. If you are part of an early stage start-up, you have those same advantages!

Have you found other ways to help minimise risk for your customers? Are there other ways to leverage your size I’ve missed? Leave a comment and let me know.

Post to Twitter Post to Delicious Post to Digg Post to StumbleUpon

{ 4 comments… read them below or add one }

Jason Cohen February 5, 2010 at 8:10 pm

Great post; little startups everywhere are going through the same machinations.

I agree with most of what you said here. I don’t believe one of a small company’s advantages is always overhead; big companies do have overhead but also can afford to waste a ton of money, so they still might deliver a product/service that a small company could never match (for the price), even if that means the big company is actually losing money on every sale.

Also saying a small company “doesn’t have much to do so we can pay attention” is maybe not the best light you can shine! Perhaps better is: “Because we’re small and agile, we can customize the product for you, even adding entire features that you need (if we think others need it too). Try getting THAT from a big company!”

Said another way, things like “we have less internal conflict of interest” isn’t exactly a benefit to the end user. Or at least, nothing immediately comes to mind. Casting it as “You can talk directly to the founder” is tangible and obviously valuable, so maybe communicates that benefit more directly.

Overall though love and agree with this post!

Finally, I love your font, at least on a Mac browser. Usually not a fan of the serif fonts for on-screen reading, but this looks nice! :-)

Reply

stevew February 8, 2010 at 7:30 am

Jason – many thanks for the feedback. I agree larger firms can run projects at a loss through cross-subsidy (e.g., not exactly analogous but of course Microsoft did so with Xbox for years), but I’d argue it’s hardly the basis for a sound long-term relationship. You’re right though – it does happen.

I think there is often a danger that the customer’s project gets less focus inside a larger firm, hence my point about having less stuff “on the go”. However if that gets interpreted as “we have less bandwidth”, I accept that isn’t a great message. Your points about flexibility and customisation are well taken on that front.

You were right about the point about conflict of interest – it wasn’t very obvious so I’ve made a minor update, adding “… with a larger supplier there is always a chance they will have their own product or service where their interests are not perfectly aligned with those of your prospect” – perhaps this isn’t all too common but it certainly can be a factor in favour of the small company.

As a general point, I thought about what you wrote in your excellent article “You’re a little company, now act like one” – I agree the early adopter is a great target market, but if you are entering a more established market with a “better mousetrap”, you don’t always get the luxury of wooing early adopters. The idea of this article was to provide a counterpoint for those entering more established markets.

(The font BTW is Georgia – I think it’s the Thesis default but I’m a PC so I’ve no idea what it looks like on Macs sadly. Glad you like it :-) ).

Reply

Doug Grossman February 11, 2010 at 10:06 pm

Another interesting post (and good graphic as well). I too loaded up the desks in the early days when a large client came by to meet us. We had an initial product that had a very limited audience. Being small in this scenario actually helped us because the large brokerage firms believed they were getting a competitive advantage by being an early adopter.

Paul Graham leaves out that Bill Gates had a rich father that seeded Microsoft, and a rich mother that was on the Board of Directors at IBM, 2 important factors for Bill Gates success that had little to do with luck (tangential to the point of the article no doubt).

Like you, I always commit to myself to not work crazy hours when starting a new venture, but it just seems like developing proprietary software is such a time consuming endeavor. I can never figure out how to get around it … at least in the first year.

Looking forward to your next post.

Reply

stevew February 12, 2010 at 9:05 am

Doug – thanks again for the feedback. It’s interesting the dynamics between being small (which like you say attracts the early adopters and offers the flexibility discussed in the article) and appearing substantial enough to be taken seriously by corporates. I think this is something you just have to be sensitive to, and on balance I still think the advantages far outweigh the disadvantages.

Reply

Leave a Comment

CommentLuv badge

{ 4 trackbacks }

Previous post:

Next post: