We’ve all been there — stuck between a rock and a hard place. In the small-scale SaaS world, there is a particular version of this universal issue. On the one hand, we need to rapidly broaden and deepen our product offering, in order to increase our product’s appeal and expand its addressable market. On the other hand, we need to generate immediate-term sales dollars, even if what the customers want / need / think-they-are-buying creates misalignment or friction against our existing solution and the product direction we’re seeking to fund with these very sales. It’s a vicious, unforgiving dynamic that can be a difficult cycle to break.
In spending time recently with a number of small-scale business operators, I’ve heard this issue come up frequently. Which reminded me of a couple simple exercises and tools that can raise awareness around this issue and help organizations avoid this tempting trap. Really, it comes down to the cost-benefit of signing on new customers in an unselective way. We tend to see and quantify the benefits of new customer acquisition very clearly: “this deal will bring in $X of recurring revenue and $Y of cash today!” What we don’t see even remotely as clearly is the organizational cost / burden of servicing that customer.
One effective exercise to combat our blindness on this issue is to fill out what we lovingly call the “Cascade of Pain.” In the Cascade of Pain, we have a diverse set of team members conjure up an existing customer that is particularly challenging to satisfy. Most every company has at least one customer in their early days where this is true: “No matter what we do, we just can’t seem to deliver to this customer what we’ve promised; they just aren’t a fit for where we are today.” In this exercise, we then we go through — department by department — and identify the range of pain that our organization has experienced as a result of our having sold this ill-fitting client (or multiple clients). Below is a sanitized version of the type of output that typically comes from this exercise:
Captured it in this way, it becomes clear that the pain from signing bad-fit customers is a burden on everyone across the entire organization. Sometimes simply codifying the pain is enough for organizations to recognize and reign-in ill-advised sales. But let’s face it, the pull of prospective revenue is powerful and the pressure to drive sales is unrelenting. In these cases, it also helps to be highly prescriptive on the front-end about deals to chase versus those to be avoided at all costs. The relatively simple exercise of establishing “Right Fit” criteria for your product can be very effective. Basically, this exercise comes at the same problem from the exact opposite perspective by asking: “What do our best customers look like / what do they have in common?” This goes far beyond the most obvious questions such as market segment (e.g. wholesalers vs. resellers vs. retailers) or size of customers (e.g. SMB vs. mid-market vs. enterprise) and gets more to the heart of how these customers interface with our company and our solution. Below are some of the questions that commonly come up:
Each category or product will have its own unique questions, but these tend to be broadly applicable. Capturing them is a critically important step, but it is really just the beginning. Incorporating them into the company DNA is an organization-wide and ongoing endeavor. It includes identifying which “Right Fit Criteria” have some latitude versus which ones are non-negotiables. It also has a major training component — certainly among sales people for use in the selling process, but also across all departments. Some systematization also helps — for instance, including some version of these questions as fields in your SFA platform. Finally, it is always a good idea to establish some processes around them. For instance, in those cases where we are knowingly going to go after a customer that falls outside our strike-zone, at least let’s make sure that we do it with sign-off from all of the necessary / effected parties, full knowledge of where the gaps are, and a plan from the get-go as to how we are going to mitigate the risks.
Because the truth is that it is our job in small-scale companies to test the boundaries of what is possible and to stretch the limits of our products and our organizations. But, that doesn’t mean we should do so blindly, or without having first clearly identified precisely where those boundaries are, and where we are comfortable pushing them.