If it’s not clear, I love working with startups. The environment and work ahead is so exciting! There is an extremely long list of to-do’s - all of which have never been done before. You can create whatever you want and/or think is best for the company (hopefully it’s both).
Every startup has its challenges. Some unique to that specific business, others that transcend every startup in existence.
One of the most common, business-impacting challenges startups face is a misalignment between what they want to become and what they actually sell to customers. Many startups begin as essentially a consultancy, offering a specialized service that is executed by actual people. However, that’s probably not what the CEO is pitching the company as…
This article is the inspiration for this edition and expands on this notion. I go back to this article every few months because it’s always relevant. If I had to guess, about 70% of the startups I’ve worked with have faced this existential challenge to some degree.
First, how does this happen?
There’s a few ways this challenge can manifest in a business:
The pitch to investors is starkly different than the pitch to customers
Leadership vigorously working towards a SaaS sales model despite no product or realistic metrics and headcount to support it
Leadership’s aversion to the word “consultancy” to describe the company’s current state/offering
Let’s talk more about communication with investors. Or, more specifically, the words, ideas, and direction that get investors bought into your startup. This is one of the most common sources of misalignment in my experience.
Tech/SaaS/“Platform” is what gets you investor funds. The predictability and scalability is very attractive to them. And that is likely the vision of your startup!
In many cases, however, that is NOT what you sell today. What you do sell probably has one or more of these attributes:
No self-service onboarding and/or account management
Customized, one-off reports/portals for a single client because they asked and you need revenue
White-glove consulting services layered on top to increase contract value (and justify headcount)
No actual client-facing software (despite this showing up in pitch decks)
All service delivery is done by humans. Sounds like a consultancy, no?
You may be wondering: “So what? Every startup has its challenges and the product today won’t be the product tomorrow. Investors know this.”
Yes. I see you and I hear you. But let’s get into…
Why this misalignment is a problem
When your CEO is driving towards a future that is inconsistent with why current customers buy from you, problems happen. Big problems - ones that can tank the company. Here’s a couple:
1. Misalignment across product and marketing/sales
Sales (and account management) should have the ear of the customer. They should (eventually) know the exact words prospects and customers are using to describe the industry, business, and what you’re selling. That should feed back into marketing strategy. Demos and client calls are a gold mine for messaging. People love to opine on the perfect words to use in collateral but in most cases, it’s an insane waste of time. Maybe just use the words your customers are sending right back to you???
So while marketing and sales may be on the same page in terms of how to pitch the offering to customers, the product team is experiencing something totally different.
They are juggling service delivery (again, basic attribute of a consultancy) while trying to make improvements to the offering’s features and internal processes. The directives they are getting from the CEO, CPO, and others is usually sourced from what is being told to investors. After all, that’s where the money is coming from! That’s the vision! How could you not work towards that?
So as marketing and sales learn new insights about the offering and what brings in more customers, the product team has their own prerogative. Ideally, these insights are shared with the product team and actually executed on. In cases of misalignment, however, they are ignored or written off as “not part of the vision.” Repeat this over and over again for several weeks and months and you’ll have 3 disgruntled teams and slower growth.
2. The CEO has blinders on and refuses to take feedback from people closest to revenue.
The one job of a CEO is to make sure the company doesn’t run out of money. Fundraising is hard and it’s easy to be influenced when there’s a check in your hand. However, that does not excuse the CEO from ignoring the concerns and ideas of their team and customers.
If your funding is dictated by reaching specific revenue goals, why would you not listen to the people that are bringing in the revenue? Yes, you may need to compromise the almighty vision. But by continuing to position and deliver your service in the way customers want, you’re increasing revenue today and hopefully getting a few more months of runway.
3. Here’s another SaaS-specific problem as explained in the article shared above:
“Your goal is to create a business that sells the exact same thing multiple times…I’ve seen so many tech companies doing this simple thing all wrong. They spend huge amounts of effort in customizing or extending their software for particular clients’ circumstances. The real cost isn’t even in cobbling something together to get a sale over the finish line; it’s the ongoing support costs to keep these customized solutions up and running later, and the enormous opportunity cost of so much mental bandwidth being squandered on fractured and tactical efforts, rather than singular strategy. While some customer flexibility is needed in early days to get a business off the ground, it can be hard for companies to then “break the habit” and assert a product vision that is truly scalable because it is minimally customized.”
What startups can do to address this problem
From the article: “Don’t mistake a culture that heroically meets external demands for a high-impact culture. The goal isn’t to work long hours, it’s for each person’s effort to have an outsize impact on revenue. You don’t want to insist that engineers and product leaders build everything for everyone as an execution arm of the business; you instead want product and engineering to be partners in strategic upfront thinking about how to create a product-business offering that is as narrow and focused as possible.”
LISTEN TO YOUR CUSTOMERS (and team members closest to the customer). You’re a young company, there’s a lot of unknowns. If you have a group of people who pay you money and give you feedback on what they want more of, probably go do that! Or if they are calling your product one thing, and your marketing pages and internal team calls it something else, maybe you should align it with the voice of the customer!
These solutions may seem simple. But you would not believe the amount of friction you can experience internally when your CEO wants to use specific words because that’s what investors are saying vs. what your customers are saying.
CEOs: get over yourself and operate your business like a consultancy. Prove out your core idea with the offering you currently have, get some more revenue, and then go out and get more funding to build whatever it is you’re selling investors.
Ensure your investors understand the current state of the product and how/why it is sold to customers. Investors should expect there to be a difference in what the company vision is vs. what is being sold today. That’s why it is called an investment!
Explaining what is working today will allow you to lay the groundwork for a realistic roadmap towards your vision - a roadmap that everyone in the company is aligned on.
Stop stifling the good work of your individual contributors by chasing a vision that isn’t currently bringing in revenue. Find what is working well with customers, and quadruple down. This is literally all you should be focused on.
I covered a lot in this newsletter so if you have any questions, thoughts, or stories, let me know! Make good choices!
-Connor