Selling to bad-fit customers will kill your SaaS startup
Failing to find the right audience for your business will guarantee a startup's failure. As founders tend to be fanatical about closing their first customers and hustling their way to initial traction, they need to keep in mind that not all customers are created equal.
If you close deals with customers that ultimately shouldn't be buying your product because their use cases are not a good fit, you will suffer the consequences.
It might seem tempting—you want to acquire customers. You want your startup to grow. Your sales reps want to close deals. And after all, a paying customer is generating revenue. So where's the problem?
The wrong data and the wrong product
During the product development process, you'll heavily rely on user feedback. You'll decide which features to focus on and what to build depending on that feedback.
But if you have bad-fit customers, the feedback will lead you astray. The only way to get valuable feedback is by asking the right people.
High customer service costs
If you're putting your product in front of people it isn't build for, they'll need a lot of help from your support team to find ways to make things work.
Your Customer Support and Success team might be able to come up with workarounds to make your product work kind of good enough to get the job done—but it'll never be the great experience your customers should expect.
Not only will your customers eventually become frustrated that things aren't built in a matter that "just makes sense" for them—your customer support team will also grow increasingly unhappy if a large part of their job is to help customers that shouldn't be customers in the first place to come up with cumbersome workarounds.
Bad-fit customers don't see value
When you're dealing with the wrong audience, those users will routinely ask you for discounts or try to haggle. They won't want to pay full price for your product, because they don't see the value in it—especially if they fail in using your product or struggle with the process.
High churn rates
If you put your product in front of the wrong users, you'll bleed customers. When those users get tired of trying to deal with a product that isn't helping them, they will stop trying to figure out your product. They'll cancel their subscription.
And nothing is worse than making changes to please an audience that'll eventually disappears. It turns your time and investment into a waste. Invest your resources into serving your Ideal Customers better instead.
Poor team morale
That situation isn't just rough for you as the head of the company. It's demotivating for the whole team that worked on developing your application. No one likes finding out their work was useless.
Damage to your reputation
It's 2019—if you disappoint your customers, word will go around. People will vent their frustration on social media, write negative reviews on software review sites, and badmouth your company to their peers. It creates a lot of bad business karma and negative energy around your company.
But you can fix the situation
Rather than acquiring more customer, focus on acquiring better customers: the kind who you can build your product for and who will adore your product once they put it to work. The kind of customer that will actually become more successful as a result of using your product.
Until you have that handful of fanatical customers, you shouldn't focus on scaling your customer base. You're still in exploration mode.
With those ideal customers, you'll be able to analyze them and their needs, so that you can create a document that shows what they have in common:
- What industry are they in?
- What size of business are they?
- Are they switching from another solution or first-time buyers?
- What's their budget for this kind of application?
- Who is the decision maker?
- Who are the users?
Important note: Sometimes unhappy customers can actually be good-fit customers. If they are the kind of customer that you want to focus on, and they aren't happy with the way your product helps them accomplish their objectives, now that is incredibly valuable feedback to take in, and should be weighed much heavier than complaints from companies that you don't want to focus on.
You can capture this information in your favorite sales CRM and manage your sales pipeline more effectively.
Qualify based on the best
Once you know what your customers have in common, you can use that information to acquire more ideal customers. You can make sure that everyone in your sales funnel is likely to use and benefit from your solution.
That's why qualifying your prospects properly early on in your sales process is so crucial.
Here's an example: Our sales CRM does not have a mobile app as of 2019. That's because we're really focused on being the best sales platform for inside sales teams: sales professionals who do most of the selling via email, SMS, phone and video calls.
If a prospect tells us that they have a big field sales force that's always on the go, and we realize that they're better of with a mobile app, we will plain out tell them that they shouldn't buy Close, and instead make some recommendations on alternative sales tools that could be a better fit.
On the other hand, if we learn that the prospect is a good fit, for example because they have a large sales team that's making a lot of sales calls, but for some reason they're hell-bent on wanting an AI powered CRM for social media, we'll challenge them on that and make a case for why our sales CRM will help them become more successful, and demonstrate how for example a feature like our built-in Predictive Dialer could double the productivity of their sales team.
When it comes to selling, always first selflessly determine whether a prospect would really benefit from using your solution, and then selfishly determine whether your company would benefit from having them as a customer.
It's easy to get distracted by a short-term win: another deal closed, another revenue milestone hit. But to really win in SaaS in the year 2019 and beyond, you need to work with urgency in the present, while adapting a long-term mindset to understand what will generate the most value in the future.
Want more advice on growing your company? Get a free copy of our book from Zero to 1,000 Customers & Beyond, which I co-authored with my friend Hiten Shah. We've both founded a series of multi-million dollar startups and share a framework for sustainably growing successful companies from scratch in this book.