Thursday, October 29, 2009

Entreprenurship - Always create customer references

My friend is an entrepreneur and he quit his day job at Accenture to start Purple Frame. As a startup, it is always an uphill climb to get customers in B2B world. With hard work, every startup gets a few customers in the initial days - many of these customers are also startups.

Being a startup is not easy when it comes to sales as customers do not want to risk with a new vendor. So one has to rely on contacts/friends to get that elusive first order. Once the initial orders get exhausted, the next ones are even tougher to get, and at this stage one needs to use different marketing techniques such as referrals, customer endorsements, white papers etc.

As a seller it is important to understand buyers psychology. All buyers want to feel safe & secure before placing the first order, feel comfortable during the subsequent orders, and lower costs in the long run. Once the buyer priorities are understood, buyers can take advantage of it. Buyers feel safe if they know the supplier is reliable. The importance of safety in the minds of the buyers was played upon by established players - "You wont get fired for buying IBM". Persons who make the purchase decision for the company are employees and for employees job security is important. As Robert T Kiosaki, author of Rich Dad, Poor Dad, puts it "employees feel safe when they have a good paying job with benefits."

Buyers are often very reluctant to buy from unknown or new vendors. This poses the first big challenge to any startup as buyers are reluctant to do business with a new player. So the first task of the seller is to make the buyer feel safe & secure while buying from a new vendor. For established companies, approaching a new client is relatively easy. As the seller has the brand name and company reputation behind him, and he only has to deal with educating the buyer about the new company and the buying process to make the buyer feel comfortable buying from a new firm.

For a startup, the problem is more acute - as he has to deal with the twin challenges of making the buyer feel safe, secure and comfortable in order to compete with an established players.

So what should entrepreneurs do?
Entrepreneurs have to overcome this challenge to succeed in business. There are two ways:
1. Sell to a niche market and avoid competition
2. Make customers feel comfortable buying from them.

Selling to a niche market or a Blue Ocean strategy is preferred route for most startups, unfortunately the market size is also small in the niche segment. So when the market grows larger, big players jump in to spoil the party. As Geoffrey A. Moore puts it in his book - "Crossing the chasm", entrepreneurs must concentrate on the early adapters first, and then comes the chasm between early adapters & majority markets where majority of startup fail to cross over.

Companies that cross over from the niche early adapter market to the majority market are the ones who have successfully addressed the buyer needs in the majority market - i.e., have learnt how to make customers feel comfortable while buying from them.

How to make customers feel comfortable?

First, understand buyers psychology. The first need of the customer is to feel safe while buying from a new vendor, and then feel comfortable while buying. So when a vendor approaches the buyer with solid credentials & referrals (from a known/trusted source) customer will feel safe to order from a new vendor.

Corporate buyers want to feel safe and secure before buying from new vendors. The best way to make the buyers feel safe & comfortable is to approach them through referrals from people whom they know and trust.

I have always noted that satisfied customers are often willing to give references to others.
Satisfied customers willing to serve as references for your new prospects. For a startup, getting successful referrals makes a big difference between winning & losing the sale. It is therefore very important to build a system in place to get referrals, follow up in referrals and maintain the referrals.

There are six steps involved in implementing a successful referral system as part of marketing process:

  1. Ask for referrals
  2. Set proper expectations
  3. Appreciate customer referrals
  4. Avoid overuse of referrals
  5. Stay in touch with customers
  6. Build a referral champion

Step-1: Ask for referrals

Satisfied customers are often willing to give referrals - only if you ask for it. So make it a point to ask for referrals during the final stages of the sales process. Ideally you must pander to the customer ego and let customer talk about his/her expertise & experience in using your product. If necessary help the customer with references - work with customer to setup a meeting with a referred party etc. Satisfied customers are often eager to refer other potential customers to you. So ask for references & ask your customer's permission before you contact the referrals.

Step-2: Set proper expectations

Once you have asked for reference, make it a point to set what you expect from him/her. Please inform the customer on how you plan to use the references. i.e., do you plan to use the references in your web site, or do you intend to use it in marketing campaign, how do yo plan to approach the referred prospects etc.

If you want your customer to talk to his referral or other prospects, let the customer know in advance & set his expectations accordingly.

Also learn & understand the customer company's policies on references. Some companies need explicit approvals for its employees to give referrals. If there is process in place at the customer site, then respect the process & set expectations accordingly.

Step-3: Appreciate customer references

As a startup (and in all businesses), it is very important to keep the customer happy even after the sale. When you are asking for references, then it is even more important to keep the customer happy after the sale. Customers who give references will feel better when you really appreciate their references. Appreciation can be as simple as calling him/her up and thanking for his/her references which helped you in your venture, or giving a simple gift (please follow the laws/rules on receiving gifts at your customer company) etc.

In one case, the customer was asked to come for an all expenses paid trip to Florida and attend a conference where your product was being showcased.

Step-4: Avoid customer burnout

It is good to ask for references but don't over do it. Set a limit on how many references you can ask from any customer. Ideally 2-6 is a good number, but asking for more than 6 references will surely burnout your customer that he may stop buying from you.

Step-5: Stay in touch with customers

Customers who have given you business are customers for life. So keep in touch with the customer on continual basis even if they do not respond or communicate back. For example, if there was a new product launch, invite all your old customers. Send any news item which is of relevance to your product & of customer benefit, keep customer posted on your progress - by sending them a summary of your annual financial statements etc.

Keeping in constant touch with customers will help in getting new orders or getting new referrals. In today's world, you can use social networking sites such as linkedin, facebook etc to keep in constant touch.

Step-6: Groom & Build customer champion

Customers who give you good references can be groomed into becoming your customer champion. For example, offering free samples of the new product before it is released in the market, offer training on use/benefits of new products, Invite customer to new product launches, or invite customer to speak in conferences, invite customers to co-author white papers etc. In this process ensure that the customer learns more about your products and your company.
Actively seek feedback & other inputs from your customer champions. Incorporate their ideas/suggestions in the next version of the product/services.

Having customer champions is the best approach to marketing. Your prospects are more receptive to the messages coming from your customer than the same message coming from your sales team. So make a plan to groom & build customer champions

Closing Thoughts

Customer references is the best way to lower the resistance to buying from a new vendor. It also helps to build a solid sales pipeline and lower your marketing costs. Having a formalized process to handle customer referrals is a must - else it will just slip between the cracks. Once you have acquired the customer, treat the customer with the total value of customer in mind. Having a customer champions will help you win big deals. If you do not have customer champions then treat it like a red flag - an early warning of things going wrong.
Startups often lack a formal marketing program, so the onus of developing the customer referrals falls on sales & company leadership. Use the referral program wisely & it will give you rich dividends.

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