Articulo Martha Rivera

7/27/2019 Articulo Martha Rivera

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HBR.ORG May 2013

reprinT r1305D

Spotlight on EntREpREnEURShip

What EntrepreneursGet WrongA a survey ss a ms mayfuders rere a sar se.

A erereeurfredy saes mde a e.by Vincent Onyemah, Martha Rivera Pesquera,and Abdul Ali

This article is made available to you compliments of Dr. Martha Rivera. Further posting, copying, or distributing iscopyright infringement.
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What EntrepreneursGet Wrong

Spotlight

2 Harard Be Reew May 2013

Spotlight on EntREpREnEuRsHip



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marke a ipADE Be sch, Mexc C.Adu A a acaerer marke aBab Cee.

A global survey shows that most companyfounders regret waiting too long to startselling. An entrepreneur-friendly sales modelcan help. by Vincent Onyemah, Martha RiveraPesquera, and Abdul Ali

ARtwoRkSara hues, Scales of Economy, paed cardbard, m x m, Red Bade CraeExhb,naa newark Bd, new Jere

For many entrepreneurs, the

process o launching a com-

pany begins with the light-bulb moment when they con-

ceive o a breakthrough idea

or a new product or service.

Very oten, they are so pas-

sionate about the idea that

they believe its merits will

be sel -evident to prospec-

tive customersthat the innovation is so obviously

superior it will sell itsel. Entrepreneurs who avoid

that delusion may think o their initial sales as a

chicken-and-egg problem: They realize that getting

buy-in rom potential customers is a top priority, but

until they design and build the product (which oten

requires securing unding, assembling a team, and

many other tasks), how could they possibly make a

sales call?

Both attitudes ail to recognize a simple act:

Salesmanship is central to the success o any young

company, and entrepreneurs ignore this at their peril.

Yet many do ignore it, in large part because they have

little sales experience and have probably not taken

classes in how to sell, even i they have ormal busi-

ness education (as Suzanne Fogel and colleagues ex-

plained in Teaching Sales, HBR JulyAugust 2012).

For those in search o guidance, the research and ad-

vice on salesmanship may not oer much help: The

vast majority o techniques, models, and strategies

are aimed at large, established companies, not start-

ups, which tend to ace a unique set o objections

rom prospects. And when entrepreneurs get around

to making those crucial rst sales, they oten make

common mistakes, such as not considering the stra-

tegic advantages o a particular customer or extend-

ing a deep discount just to make the sale.

In our study o entrepreneurs in Hong Kong,

Kenya, Mexico, Nigeria, the United Kingdom, and

May 2013 Harard Be Reew 3

FoR ARtiClE REpRints CAll 800-988-0886 oR 617-783-7500, oR visit hbR.oRg

CopyRigHt 2013 HARvARD BusinEss sCHool puBlisHing CoRpoRAtion. All RigHts REsERvED.

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As one U.S. entrepreneur who had approached the

task correctly said, The goal o our demo was notonly to explain what we do but also to give the illu-

sion o explaining what we do, while we really tried

to extract inormation about their business and how

we could help them.

Oe scos. Faced with pressure (rom

themselves or their VCs) to make early sales, many

ounders oered price discounts in order to close ini-

tial dealsoten establishing unsustainable pricing

precedents with those customers. Worse yet, news

o the discounts spread around small industries,

crippling the ventures long-term pricing power.

In retrospect, the entrepreneurs wished they had

ound alternative sweeteners to close early dealsree shipping, say, or a discount on orders placed

beore a certain date. And i youre going to oer

temporary discounts, they told us, its smart to put

the terms in writing.

Se o es. Making early

sales to amily members was especially common

among entrepreneurs outside the U.S. and or those

in the restaurant, clothing, and wealth management

industries. But you never know why relatives are

buying rom youoten their motivation is love,

pity, or a sense o obligation, not compelling prod-

uct quality. In retrospect, ounders believed those

sales created a alse sense o validation and that they

would have been better o pursuing arms-length

transactions with customers who would have given

them candid eedback.

F o see sec es. For cash-

strapped entrepreneurs with no sales record, the

thrill o getting the irst yes can blind them to

other considerations. Can this customer open new

doors or provide reerrals? Can the customer sup-

ply usage data that could make my value proposi-

tion more compelling? Some o the ounders we

interviewed wished they had conducted a strategic

assessment o their rst buyers. Others chose their

rst clients deliberately in order to get eedback, per-

Some founders realized that theirpassion and ego made them respondnegatively to criticism and discountideas for improving their products.

the United States, we shed light on how they ap-

proached the task o making their irst sales andwhat they wished theyd done dierently. In all, we

spoke with 120 ounders, more than hal o whom

had previous start-up experience. In this article, we

examine the mistakes they cited most requently,

explore the objections they aced when they began

making sales calls, and present an alternative sales

model uniquely suited to a start-ups circumstances.

Reres, weve had a FeThe ounders we interviewed cited the ollowing

ve missteps most requently:

S e. More than hal our interview-

ees ully developed their products beore gettingeedback rom potential buyers. In hindsight, most

viewed this as a mistake, echoing one o the man-

tras o Eric Riess lean start-up philosophy: Get

in ront o prospects rom day one. As one CEO told

us, Youll learn more rom talking to ve custom-

ers than you will rom hours o market research [at

a computer]. The goal should be to gauge customer

reaction to the general concept you plan to build.

Dont make anything until you sell it, advised one

entrepreneur. Get people really interested in buy-

ing it beore you invest too much time and eort.

F o se. Even ounders who started

selling early said they were too ocused on convinc-

ing prospects o the new products merits and not

concerned enough with nding out what prospects

thought o the idea. Some realized that their passion

and ego made them respond negatively to criticism

and discount ideas or changes that they later saw

would have increased the marketability o their o-

erings. Listen to the eedback rom the customers

and reshape your idea and your product to t what

they actually want, one interviewee advised. An-

other described the process this way: Its really all

about understanding what the pain point is in the

marketplace, and the best way to do that is to talk to

prospects and validate, validate, validate your idea.





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orm beta testing, get reerrals, or guarantee repeat

business. These strategic rst sales oten led to long-

term success.

Srry, Yure t SmaAs they looked back on their nascent sales eorts,

the entrepreneurs we spoke with described a long se-

ries o hurdles. Many had problems developing lists

o prospects. Once they had identied likely targets,

they aced obstacles in getting past gatekeepers or

securing appointments. (This is especially problem-

atic in Latin America and Arica, where most people

wont pick up the telephone i they dont recognize

the number displayed. In those situations, ounders

needed to nd acquaintances who could make reer-

rals simply to secure an appointment.) Some entre-

preneurs described difculty articulating precisely

what made their product or service dierent rom

the alternatives. When they did make a sale, several

suered because no one in their venture was respon-

sible or accounts receivable. I realized I had to col-

lect when I ran out o cash, reported one Mexican

ounder. At times, three or our months would pass

without invoices being sent to customers, because I

was not well organized.

The biggest problem with the actual mechanics

o selling, however, was handling the objections o

potential customers. Our interviews revealed ive

categories o objections, most o which are dierent

rom those aced by salespeople in established rms.

Efcc. Potential customers were consistently

skeptical about the ability o new products to deliver

on their value propositions. Some entrepreneurs

could show results rom beta tests or independent

lab results, but that wasnt possible or all products

and services. In those cases, oering samples or ree

trials oten proved eective. One o our subjects, the

ounder o a urniture reupholstering business in

Mexico, made an early sale by eating lunch in one

o his markets largest hotels. At the end o the meal,

he asked the restaurant manager to introduce him to

the acilities director, who came to the table. The en-trepreneur showed him the worn abric on the chairs

and oered to reurbish two o them or a small rac-

tion o the replacement price. Once the acilities di-

rector saw the nished chairs, he talked the business

up at meetings o his proessional association, lead-

ing other big hotels to place orders.

Ce. Prospects also expressed doubt

about a new company on the basis o the ounders

age, gender, personal background, or experience

level. Founders with relevant experience high-

lighted that; those who lacked it touted partners

or board members with solid industry reputations.

The ounder o a Nigerian outsourcing company de-

scribed the process: The rst resistance had to do

with the company being very new, but I conquered

that by showing that Id been in this kind o busi-

ness or years beore venturing out solely. Then they

looked at my board composition and elt the direc-

tors were credible enoughand theyhad condence

in this young company. That gave them the needed

boost to say, OK, lets just have a go.

Sze. One ounder we spoke with summed up

this pervasive concern: How do you make the pros-

pect comortable with the act that your company

is small? There is no easy answer. Many ounders

highlighted a key beneit o their companys size:

the act that customers were dealing with the CEO

instead o a sales rep. For companies selling physi-

cal products, quality and value helped dispel con-

cerns. Ultimately, though, overcoming objections

about size required ounders to develop trust with

prospects and to take steps to reduce the risk o deal-

ing with a start-up. For instance, some ounders did

not ask or a deposit rom their earliest customers

but instead used a pay-on-delivery model until they

achieved a track record.

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SharE idEawith SElECt

grOup OFprOSpECtS

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pce. Salespeople rom established businesses

oten ield complaints about price, o course, but

start-ups reported that their prospects were espe-

cially likely to push back on pricing because they

knew the entrepreneurs were eager to make early

sales. In act, several prospects stated directly that

they expected signiicant price cuts or becom-

ing early users. Some entrepreneurs walked away

rom those deals, some gave discounts, and others

pushed back.

Price objections oten stemmed rom prospects

incomplete, biased, or subjective cost/benet analy-

ses, so savvy ounders developed tactics to counter

these. For instance, a Mexican start-up pitching

digital recordkeeping to large organizations consis-

tently met with executives who ailed to account

or the real estate and labor costs o storing a large

amount o poorly organized records in a back ofce.

Over time, this companys ounders became adept

at calculating those costs to illustrate the value o

their service. For entrepreneurs who believed their

prices were air, a price objection could indicate that

they were ailing to adequately describe the oering.

Usually when prospects said they couldnt aord

our service, I interpreted it as they didnt want it or

didnt understand it, a ounder told us. That meant

we had to go back and do a better job explaining our

service and how we could add value.

Sc coss. To adopt a new product or ser-vice, prospects might need to modiy their routines,

procedures, systems, or internal or external relation-

ships. Making such modications to switch to a new,

untested oering can seem especially costly, but

buyers do not always verbalize these concerns. To

address tacit objections about switching costs, the

entrepreneurs we interviewed took it upon them-

selves to ask questions that would lead prospects to

talk reely. One U.S.based start-up that produced a

mobile app to help people make restaurant reserva-

tions recalled a key problem at the time: Most res-

taurants dont have a computer at the ront desk, and

so we had to address that. The managers said, Well,

were not really looking to change the way we do

things. Restaurants are pretty slow to change. The

ounders won managers over by showing them pro-

jections (based on beta tests) o how revenue would

increase as customers became able to manage their

own wait times.

A Saes Framer fr SarUsExisting rameworks or selling are ocused on es-

tablished companies. They almost always assume

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gEnEratElEadS FrOm

largEr grOupOF prOSpECtS

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addrESSObjECtiOnS

that the salesperson has a ully developed product,

and they have a simple goal: to make a sale. While

these models advise reps to listen to prospects in

order to anticipate objections or gain insight into

the organizational dynamics that drive decision

making, they generally do not account or the act

that inormation gleaned during the sales process

can be crucial in designing (or redesigning) the

product itsel.

On the basis o our interviews with company

ounders, we have constructed an alternative model

thats ar more suitable or start-ups (see the exhibit

An Entrepreneur-Friendly Sales Model). It calls

or engagement with prospects as soon as an idea

is conceivedand long beore the product is actu-

ally created. The goal o these meetings is to obtain

market intelligence not only about product design

but also about promotion, distribution, and pricing

strategies. Ater a round o these meetings, an entre-

preneur should ask i the idea really has strong and

broad appeal. The answer to that question should

determine whether the entrepreneur jettisons the

idea, returns to the drawing board, or proceeds to

develop a prototype, obtain conditional commit-

ments rom prospects, generate more leads, and

engage in other traditional sales activities.

Research has shown that its easier to get people

to commit to an idea i they are involved in its cre-

ation. By engaging with prospects early, ounders

can not only gather eedback to improve product de-

sign but also increase prospects involvement in the

process, thus raising the odds that theyll purchase

the oering.

This model may also ease the challenges entre-

preneurs ace in getting appointments with pros-

pects. I ounders present the appointments as occa-

sions to discuss products that dont yet existnot as

sales callsprospects may be more open to them. In

general, people are more willing to give advice than

to listen to a sales pitch. Entrepreneurs can use that

dynamic to their advantage.

StARt-UpS FAcE many challenges, and entrepreneurs

must wear many hats during the process o launch-

ing a company. Its no surprise that they oten post-

pone selling (or otherwise engaging with customers)

until theyve already created and begun producing

their oerings. Our research demonstrates, however,

that early customer eedback is essential and that

ounders who ail to consult with customers soon

ater the lightbulb moment will ultimately come to

regret it. hbR RerR1305D

Product

executIon



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