How Tech Startups Get Themselves in a Sales Mess …
One common behavioural mistake among B2B tech startups is trying to sell to companies that don’t fit your Ideal Customer Profile (ICP). It may seem benign when a small business agrees to sell to a new client in the wrong industry or segment, perhaps because the money and survival are more important. In fact, any sales success is often regarded as positive and a potential lifeline for a startup. The problems begin when prospects appear who are outliers with very different requirements and ask you to change your processes, business model and disregard your own rules of engagement. Getting embroiled in this way can be very dangerous, but equally, it can also be hard to do the right thing and simply walk away. Because a startup has spent time defining its target market and ICP, it not only knows what a good customer looks like but must also be mindful of the damage that can be done by customers who are not a good fit.
Bad Business is Bad for Your Startup
If 43% of startup failures are linked to poor product-market fit or lack of market need, then defining and focusing on an ICP is not simply a marketing exercise, but it’s one of the most important risk-reduction activities a startup can undertake. So, why go to the effort of defining your ICP, only to ignore it? Blindly investing time and energy trying to court one big sales opportunity, just because the money could transform your business, when all the signals are telling you to back off, is not a successful growth strategy. How do you gracefully admit your folly and backtrack? Many early-stage startups find it easier to ignore the fact that a large prospect doesn’t fit the strategy and go-to-market plan, because beggars can’t be choosers, or they simply see the dollar signs and then all logic goes out the window. It’s always important to remember that there are significant risks and costs to doing bad business with the wrong customer.
The Hidden Costs of Selling Outside Your ICP
Prospects engaged in a buying process have no regard for your startup and will happily allow you to submit your proposal to make up the numbers and fulfil their procurement requirements. Chances are, they have already earmarked a winning solution in the shortlist, and you never had a chance. The two weeks you invested in preparing a proposal were a waste of precious time.
There are several practical consequences that almost every startup experiences when selling, or attempting to sell, outside its ideal customer profile:
- Lower Win Rates: Prospects outside the ICP are generally a bad fit for your solution because their needs are not aligned. They do not experience the specific pain points you are trying to fix. Consequently, they are less likely to understand where your solution fits, what it does, how they would benefit or why they would buy, resulting in a weak business case.
- Longer Sales Cycles: The further a prospect sits from your ideal customer profile, the more education, persuasion and justification is typically required. This takes time and resources you cannot afford.
- Increased Customer Churn: Customers who are not a natural fit are more likely to leave, resulting in lower retention and customer lifetime value.
- Product Bloat: Non-ICP customers often request features, ways of working and contract agreements that benefit only a small minority of users, pulling the product and important resources away from your core market.
- Reduced Profitability: Sales, onboarding, support and account management costs increase, while revenue quality declines.
- Loss of Strategic Focus: Perhaps the biggest risk of all. Founders become distracted chasing one-off opportunities instead of building a repeatable, scalable growth model.
The key lesson is don’t waste time bidding for sales opportunities you are unlikely to or have no right to win but will bend your business out of shape. The time it takes to lose a big sales deal, for a customer you were never going to win, can never be clawed back and reinvested in moving your business forward with the correct strategy.
Unhealthy Distractions
Once you have gone to the trouble of defining your target market and ICP, you must be disciplined and focus all your time and resources on this prospect group. Do not waste energy creating or chasing after the wrong sales, especially if they require you to operate outside your standard sales and delivery processes. By having a compelling offering and actively promoting your brand, you may attract attention from prospects who sit outside your target audience, even if you didn’t directly solicit them. Somehow, they find your website, and without taking the time or trouble to fully understand your proposition and realise it isn’t for them, they may present themselves as a lead. This is where the problems begin. You must be wary of pursuing any such leads aggressively, if at all. Some will not even have a valid reason for contacting you and are just looking for another comparative quote for their Request for Proposal (RFP) process, which you are unlikely to win.
Just Say NO – Politely
Wasting a startup’s precious time and resources on the wrong sales opportunities is likely to leave you bitter and twisted, with nothing to show for your efforts. You must train yourself and your teams to know when to “no-bid” and turn down non-aligned business opportunities, no matter how attractive they may appear on the surface. They will drain your scarce resources and will most likely disregard your proposal, leaving you with nothing but a bitter aftertaste of rejection. If you were praying for a shortcut to success, well, I’m sorry to say there aren’t any, and prospects that do not fit your ICP are unlikely to advance your business plans. You would be much better off investing that wasted energy in engaging with true prospects from your target audience in any way possible. Allowing yourself to get distracted can at best be a bad experience, one you will vow never to repeat, or at worst, take you down a path of self-destruction.
Choose Your Customers Wisely
If you are too busy with prospects that are a good fit by meeting your ICP criteria, you are less likely to allow yourself to be distracted when unsolicited inbound leads come to you from a business in an industry you do not know or understand. Whenever you find yourself talking to a company that doesn’t fit, you must ask yourself why you are willing to entertain them and must fully understand the implications of continuing that conversation. If they have a blue-chip brand and deep pockets, it’s easy to start thinking about how beneficial they could be as a reference customer, and their money would certainly be welcome. However, this is often delusional thinking and should act as a warning. Remember, you get to decide who you sell to, not the other way around, and if they are a bad fit, this could have severe repercussions across your entire business.
How to Assess Non-Conforming Sales Opportunities
When sales opportunities land on your table from outside your target list, you must be extra vigilant, and in many cases, especially where they do not resemble a typical customer in any way, it is best to steer clear. However, there may be certain circumstances that allow for some nuance and wiggle room. For example, if a non-target prospect presents itself, appears easy to contract with and service, requiring little additional effort or consideration, then there is an argument to proceed with caution. It could be that they are smaller than the companies you normally serve but have similar needs and the funding to afford your solution. Or it could be that they sit in an adjacent market and see the value in your solution to help them solve a high-priority problem. It’s possible that such scenarios could work in your favour and may pass your acceptance test. However, you must complete the appropriate due diligence first, making sure you are not sowing the seeds for problems down the line.
Don’t Get Bent Out of Shape
Provided any prospect is not going to demand you change your business model, delivery approach, working practices or expose you to unnecessary risk, it may be worth considering. However, if they require any of the above, or make you jump through hoops that you are not capable of or accredited for, then this is a red flag. If a non-target prospect can buy just the same as any of your target prospects would and is easy to deal with i.e., there is no extra or special attention necessary to sell to or service and support them, then it may be possible to make it work. Just be aware of the risks and do everything you can to mitigate them. Too many good startups will bend themselves out of shape to win a big sales opportunity, trying to be the answer to every prospect’s problem. You are not the tech equivalent of a Swiss army knife, so don’t kid yourself. Better to accept that what you really are is a precise scalpel, perfect for the purpose and customer it was intended.
Keep Your Eyes on the Prize
Walking away from opportunities that are a poor fit for your startup helps you stay focused on the correct target prospects and the customers you want for your business. Also, if you are focused on medium-sized businesses, for example, then beware of small customers that may cost you more to service and support or very large customers that take all your attention away from servicing your ICP-aligned clients – you cannot afford to upset them. Never allow your attention or resources to be drained away by anything that sits outside the target audience you identified for your business, at least until and unless it’s part of a defined and agreed adjustment to your plan. Otherwise, stay focused and stay on-strategy.
Always Respect Your Strategy
Many cash-hungry startups make the mistake of wasting their efforts closing the wrong deals, usually out of desperation and when they can least afford costly distractions. Even if you have the capability and spare capacity to do something that sits outside your strategy, you must examine it deeply first and make an informed decision, not a reactive one. Make that decision with a strong bias toward executing your existing strategy and not sacrificing attention away from it. It’s always important to be transparent with prospects, making it clear that they are not your intended client and that if they truly want your solution, making such an exception may come with certain caveats and costs. In fact, pricing the solution appropriately to cover any increase in delivery or operational costs is a good way to qualify the prospect and maintain a healthy profit margin. A non-target prospect must pay more than other clients for your solution if you are going to agree to do something outside the normal terms of service.
Consistent Customer Acquisition
While having another paying customer to help keep the lights on and grow your business can be an overwhelming economic driver, it may come back to haunt you later if they bend your business into something unrecognisable. As much as possible, you must have faith in your strategy and stick to the plan, knowing you will win the right customer types with perseverance, a little patience and refining your tactics as you go. The right sales opportunities will help progress and grow your startup, while conforming to your strategy, mission and investment pitch. If you begin to acquire new customers that make no sense, it will undermine everything you say to your team internally, to the market at large and to investors.
You may want to read: “Why Tech Startups Offer Equity to Employees.”
